Filed: Sep. 26, 2001
Latest Update: Mar. 02, 2020
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 00-50609 _ UDV NORTH AMERICA, INC., Plaintiff - Counter Defendant - Appellant-Cross-Appellee, versus TEQUILA CUERVO LA ROJENA, S.A. DE C.V.; ET AL., Defendants, TEQUILA CUERVO LA ROJENA, S.A. DE C.V., Defendant - Counter Claimant - Appellee-Cross-Appellant. _ Appeal from the United States District Court for the Western District of Texas (SA-98-CV-583-PMA) _ September 26, 2001 Before POLITZ and BARKSDALE, Circuit Judges, and FALLON, Distr
Summary: UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT _ No. 00-50609 _ UDV NORTH AMERICA, INC., Plaintiff - Counter Defendant - Appellant-Cross-Appellee, versus TEQUILA CUERVO LA ROJENA, S.A. DE C.V.; ET AL., Defendants, TEQUILA CUERVO LA ROJENA, S.A. DE C.V., Defendant - Counter Claimant - Appellee-Cross-Appellant. _ Appeal from the United States District Court for the Western District of Texas (SA-98-CV-583-PMA) _ September 26, 2001 Before POLITZ and BARKSDALE, Circuit Judges, and FALLON, Distri..
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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 00-50609
____________________
UDV NORTH AMERICA, INC.,
Plaintiff - Counter Defendant -
Appellant-Cross-Appellee,
versus
TEQUILA CUERVO LA ROJENA, S.A. DE C.V.; ET AL.,
Defendants,
TEQUILA CUERVO LA ROJENA, S.A. DE C.V.,
Defendant - Counter Claimant -
Appellee-Cross-Appellant.
____________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
(SA-98-CV-583-PMA)
____________________________________________________________
September 26, 2001
Before POLITZ and BARKSDALE, Circuit Judges, and FALLON, District
Judge:1
PER CURIAM:2
Primarily at issue is whether Tequila Cuervo La Rojena, S.A.
de C.V. (Cuervo), is entitled to terminate a 1991 Trademark License
Agreement with Heublein, Inc. (now known as UDV North America, Inc.
1
District Judge for the Eastern District of Louisiana, sitting
by designation.
2
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
(appellant UDVNA)), as a result of the merger of Heublein’s
indirect parent, Grand Metropolitan plc, and Guinness plc, and
pursuant to a provision in the Agreement prohibiting, without
Cuervo’s prior written consent, “any merger or other act which
results in Grand Metropolitan losing control of”, inter alia,
Heublein. UDVNA appeals the summary judgment granted Cuervo on the
ground that UDVNA breached that provision. Cuervo cross-appeals,
challenging several evidentiary rulings and the dismissal of its
damages claim. AFFIRMED in part; VACATED in part; and REMANDED.
I.
Heublein began distributing José Cuervo tequila in the United
States in 1966. Between then and 1997, Heublein underwent numerous
corporate ownership and management changes.
In 1987, Grand Metropolitan plc (GrandMet), a publicly-traded
British company, acquired Heublein from R.J. Reynolds (which had
acquired Heublein in 1982). Heublein became an indirect subsidiary
of GrandMet and its wine and spirits division, International
Distillers and Vintners Limited (IDV); Heublein’s direct parent was
Heublein Holdings Corporation (Heublein Holdings).
In 1991, Cuervo and Heublein entered into the Trademark
License Agreement which, inter alia, granted Heublein the exclusive
right to distribute Cuervo’s tequila products in the United States
until expiration of the Agreement (the end of 2010). The present
2
dispute involves the interpretation of Agreement ¶ 13, entitled
“Assignability”:
(a) Since HEUBLEIN and CUERVO’s
predecessor in title have a long-established
and satisfactory business relationship, and
taking into consideration the personality and
status of HEUBLEIN and CUERVO [“intuitu
personae” in the controlling Spanish language
version of Contract], subject to the
exceptions herein, it is strictly forbidden
for HEUBLEIN or CUERVO to sublicense, transfer
or assign totally or partially to another
person, company, or entity or partially to
another person, company, or entity the rights
or obligations under this Agreement without
the prior written consent of the other party.
(b) Without limiting Paragraph 13(a)
above, the following acts cannot be made
without the prior written consent of CUERVO:
(i) A transfer, exchange or
assignment by Grand Met of the controlling
shares of HEUBLEIN or of I.D.V. or of
HEUBLEIN’s parent company, so Grand Met loses
control of any such companies;
(ii) any merger or other act which
results in Grand Met losing control of
HEUBLEIN, or I.D.V. or HEUBLEIN’s parent
company [“de la compañia que controle a
HEUBLEIN” in the Spanish version] ....
(Emphasis added.) Subpart (c), which lists certain transactions
which “shall not be considered to fall within” the scope of subpart
(a), does not include mergers by GrandMet.
On 1 July 1997, Heublein changed its name to IDV North America
(IDVNA). That December, GrandMet merged with Guinness plc
(Guinness), also a publicly-traded British company. The merger was
accomplished under British law, pursuant to a “Scheme of
3
Arrangement”, in which, in exchange for their shares in GrandMet,
GrandMet’s shareholders obtained shares in Guinness, which was
renamed Diageo plc. Following the merger, GrandMet continued to
exist as a wholly-owned, indirect subsidiary of Diageo. Post-
merger, GrandMet functions as an intermediate holding company; it
owns all the shares of its subsidiaries, including: UDVNA;
Heublein Holdings (UDVNA’s parent); and IDV (now known as United
Distillers & Vintners (HP) Limited (UDV (HP)). Based on the market
capitalization of GrandMet and Guinness, GrandMet’s shareholders
received a 52.7 percent stake in Diageo; Guinness’, 47.3 percent.
On 1 February 1998, Cuervo notified UDVNA it was terminating
the Agreement, claiming, inter alia, that, as a result of the
merger, GrandMet had lost control of Heublein. Shortly thereafter,
the parties entered into a standstill agreement, pursuant to which
they have continued their commercial relationship. The standstill
agreement stays the effective termination date of the Agreement, so
long as UDVNA, in Cuervo’s sole discretion, is negotiating for a
new contract in good faith and in a timely manner.
The following July, IDVNA changed its name, as mentioned, to
UDVNA; and IDV became, as mentioned, UDV (HP). Guinness’ wholly
owned spirits subsidiary, United Distillers (UD), was renamed
United Distillers & Vintners (ER) Limited (UDV (ER)), and remained
a wholly-owned subsidiary of Diageo until June 1999, when it became
a wholly-owned subsidiary of UDV (HP) (formerly IDV).
4
Also in July 1998, UDVNA filed this action against Cuervo,
seeking a declaration that the merger did not result in GrandMet’s
losing control of Heublein. Cuervo counterclaimed, inter alia,
that the merger caused such loss of control, entitling it to
terminate the Agreement.3 The parties consented to proceed before
a magistrate judge.
In July 1999, the magistrate judge denied cross-motions for
summary judgment on the loss-of-control issue. The motions were
renewed post-discovery. In March 2000, the magistrate judge
granted Cuervo’s motion, holding the merger resulted in GrandMet’s
losing control of Heublein. That May, prior to commencement of
trial on damages, the magistrate judge ruled Cuervo was not
entitled to seek disgorgement of UDVNA’s post-merger profits as a
remedy for breach of the loss-of-control provision, and excluded
much of Cuervo’s damages evidence. As a result, Cuervo chose not
to proceed to trial; its damages claims were dismissed with
prejudice.
3
In addition to asserting breach of the loss-of-control
provision, Cuervo also asserted other termination bases. Those
other bases were severed and abated, and are not at issue on
appeal. Accordingly, not properly before us is Cuervo’s contention
that termination of the Agreement is also justified by GrandMet’s
disclosure to Guinness of confidential information about Cuervo, in
violation of the Agreement’s prohibition on revealing such
information to third parties.
5
II.
In contesting the summary judgment on the breach of the loss-
of-control provision, UDVNA contends: judgment should instead be
granted UDVNA, because the merger did not result in GrandMet’s
losing control of Heublein; alternatively, judgment is
inappropriate because the loss-of-control provision is ambiguous,
and therefore presents a material fact issue regarding the parties’
intent.
Cuervo seeks a new trial on damages. It challenges the
exclusion of evidence regarding damages, as well as the ruling that
disgorgement of UDVNA’s post-merger profits is not an available
remedy.
A.
Needless to say, we review a summary judgment de novo, using
“the same criteria as the district court, viewing all facts, and
the inferences to be drawn from them, in the light most favorable
to the non-movant[]”. Forsyth v. Barr, 19 F.3d 1527, 1533 (5th
Cir.), cert. denied,
513 U.S. 871 (1994). The judgment is proper
if, in the light of the summary judgment record, “‘there is no
genuine issue as to any material fact and the mov[ant] is entitled
to a judgment as a matter of law’”.
Id. (quoting FED. R. CIV. P.
56(c)).
“[T]he substantive law will identify which facts are
material”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
6
(1986). “Only disputes over facts that might affect the outcome of
the suit under the governing law will properly preclude ... summary
judgment.” Id. “[A] dispute about a material fact is ‘genuine’
... if the evidence is such that a reasonable jury could return a
verdict for the nonmov[ant]”.
Id.
The Agreement states it will be interpreted in accordance with
Texas law. That law provides: “The primary concern of a court in
construing a written contract is to ascertain the true intent of
the parties as expressed in the instrument”. Nat’l Union Fire Ins.
Co. v. CBI Indus., Inc.,
907 S.W.2d 517, 520 (Tex. 1995). Of
course, “[w]hen a contract is not ambiguous, the construction of
the written instrument is a question of law for the court”. MCI
Telecomm. Corp. v. Tex. Utilities Elec. Co.,
995 S.W.2d 647, 650
(Tex. 1999). On the other hand, “[i]f a contract is ambiguous,
summary judgment is inappropriate because the interpretation of a
contract is a question of fact”. Geoscan, Inc. of Tex. v. Geotrace
Tech., Inc.,
226 F.3d 387, 390 (5th Cir. 2000) (internal quotation
marks and citation omitted). Accordingly, as an initial matter, we
must decide whether the loss-of-control provision is ambiguous;
that decision is a question of law. See Friendswood Dev. Co. v.
McDade + Co.,
926 S.W.2d 280, 282 (Tex. 1996); see also
Geoscan,
226 F.3d at 390. “This determination is made by looking at the
contract as a whole in light of the circumstances present when the
parties entered the contract.”
Friendswood, 926 S.W.2d at 282.
7
But, “[p]arol evidence is not admissible for the purpose of
creating an ambiguity”. Nat’l Union, 907 S.W.2d at 520.
“If a written contract is so worded that it can be given a
definite or certain legal meaning, then it is not ambiguous.”
Nat’l Union, 907 S.W.2d at 520. But, “if the contract is subject
to two or more reasonable interpretations after applying the
pertinent rules of construction, the contract is ambiguous”.
Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd.,
940 S.W.2d
587, 589 (Tex. 1996). “A term is not ambiguous because of a simple
lack of clarity.” DeWitt County Elec. Coop., Inc. v. Parks,
1
S.W.3d 96, 100 (Tex. 1999). And, “[a]mbiguity does not arise
simply because the parties advance conflicting interpretations of
the contract; rather, for an ambiguity to exist, both
interpretations must be reasonable”. Lopez v. Munoz, Hockema &
Reed, L.L.P.,
22 S.W.3d 857, 861 (Tex. 2000).
The magistrate judge held that, because the Agreement provides
Texas law governs its interpretation, and because that law provides
a definition of “control” in a corporate setting, the loss-of-
control provision is not ambiguous. That cited definition is found
in the Texas Business Corporation Act (TBCA):
“Control” means the possession, directly or
indirectly, of the power to direct or cause
the direction of the management and policies
8
of a person, whether through the ownership of
equity securities, by contract, or otherwise.
TEX. BUS. CORP. ACT ANN. art. 13.02A(5) (Vernon Supp. 2001).
In a very thorough and detailed opinion, the magistrate judge
concluded: post-merger-GrandMet has only so much power to control
its subsidiaries as Diageo delegates and allows; therefore, Diageo,
not GrandMet, controls Heublein (now UDVNA); and, therefore,
GrandMet lost control over Heublein, within the meaning of
Agreement ¶ 13(b)(ii). The magistrate judge articulated several
bases for that conclusion.
First, unlike pre-merger-GrandMet, which was the “top company”
in its corporate group and, through its board of directors and the
board’s executive committee, controlled Heublein and IDV, post-
merger-GrandMet became a wholly-owned subsidiary of Diageo, which
has the power to appoint GrandMet’s directors; and Diageo has
delegated all the authority to direct UDVNA’s operations to its own
executive committee, and has not delegated any authority to
GrandMet.
Second, the magistrate judge held that “control”, as used in
¶ 13(b)(ii), was not synonymous with “ownership”, because ¶
13(b)(i) addresses changes in ownership (the paragraph refers to
the “transfer, exchange or assignment by GrandMet of the
controlling shares”), and ¶ 13(b)(ii) was intended to be much
broader; therefore, post-merger-GrandMet’s ownership of all UDVNA’s
stock does not constitute “control”. The magistrate judge held
9
that UDVNA’s reliance on the TBCA’s provision that “beneficial
ownership of ten percent or more of” the outstanding shares
“creates a presumption” of control, TEX. BUS. CORP. ACT ANN. art.
13.02A(5), was misplaced, because: Diageo owns more than ten
percent of GrandMet’s stock and, therefore, would control GrandMet
and each of its subsidiaries; and, in any event, the presumption of
control arising from GrandMet’s ownership of all UDVNA’s stock was
rebutted by Cuervo’s summary judgment evidence, which established
that GrandMet did not exercise any control over UDVNA’s management
and policies. The magistrate judge therefore rejected UDVNA’s
contention that actual exercise of the power to control is not
essential.
Relying on the same distinction between ownership and control,
the magistrate judge also rejected UDVNA’s contention that GrandMet
continues to control UDVNA based on its dominance of the merger
(approximately 53 percent of the original shares of Diageo were
held by former GrandMet shareholders), and the relatively few
changes in key personnel involved in the Cuervo-UDVNA relationship.
The magistrate judge acknowledged that “indirect” control could
satisfy ¶ 13(b)(ii), but only so long as it is “ultimate” control.
Third, the magistrate judge relied on ¶ 13(c)’s list of
transactions excluded from the transfer prohibition in ¶ 13(a);
that list does not include transactions such as the
Guinness/GrandMet merger. The magistrate judge reasoned that ¶
13(c)(i), excluding from the transfer prohibition an “inter-company
10
transfer of control of Heublein within the companies currently
owned by GrandMet or which are created hereafter by GrandMet solely
for tax or administrative purposes and thereafter remains so
constituted”, illustrated the parties’ intent that other transfers
of control were understood to fall within the scope of ¶ 13(b)(ii).
Finally, the magistrate judge observed that UDVNA’s
interpretation of “control” appeared to be in direct conflict with
the position adopted by Guinness for a settlement agreement
resolving an objection to the merger by Louis Vuitton Moët Hennessy
(LVMH), one of Cuervo’s competitors. LVMH had objected on the
ground that GrandMet would control the post-merger company because
53 percent of Diageo would be owned by GrandMet shareholders, in
violation of a provision in LVMH’s contract with Guinness. The
Guinness/LVMH settlement agreement provides:
The Parties understand that following the
Merger there may be a reorganization of the
Guinness Group including the combination of UD
with IDV. The Parties acknowledge that such
reorganization will not give rise to control
event or equivalent provisions under the
[LVMH/Guinness contracts], provided that all
companies remain, directly or indirectly,
wholly controlled by Guinness.
Characterizing the “control” language in the LVMH/Guinness contract
as “parallel” to the “control” clause in the Cuervo/Heublein
Agreement, the magistrate judge concluded that the LVMH/Guinness
settlement reflected Guinness’ recognition that “ownership” is
distinguishable from “control”.
11
Cuervo endorses the magistrate judge’s interpretation,
asserting the merger resulted in GrandMet’s losing the power to
direct or cause the direction of UDVNA’s management and policies,
because, post-merger, Diageo, not GrandMet, exercises that power by
virtue of its ownership of GrandMet and its refusal to delegate any
managerial authority over UDVNA’s operations to GrandMet.
Moreover, pre-merger-GrandMet’s corporate group was expanded, as a
result of the merger, by the admission of parties who had been
direct competitors of pre-merger-GrandMet (Guinness and LVMH).
Cuervo points out that pre-merger-GrandMet: through its
board, actively controlled the activities of Heublein; was a
publicly traded corporation, with its own executives and hundreds
of employees in numerous divisions; and was the top company in its
corporate group. In contrast, post-merger-GrandMet: became one of
Diageo’s wholly-owned subsidiaries, resulting in Diageo’s having
the power to appoint GrandMet’s directors; no longer has any active
committees, executives, separate place of business, or payroll; has
nothing to do with the direction of management or policies of the
alcoholic beverage business, but instead conducts only transactions
that have a finance or tax purpose; and cannot exercise any control
over UDVNA because Diageo has delegated the authority to control
UDVNA to UDVNA’s executive committee, not to GrandMet.
Cuervo also relies heavily on the inclusion of the phrase
“intuitu personae” in the Spanish version of the Agreement to
12
describe the relationship between Heublein and Cuervo’s
predecessor, signifying a trust relationship built on moral
character and integrity, one that prohibits the intrusion of third
parties. According to Cuervo, in order to function effectively in
a national market such as the United States, the owner of a
privately held trademarked alcoholic beverage, such as Cuervo, must
distribute its products by entering into a licensing agreement with
one of a limited number of international distributors. Because
those distributors generally own the products they distribute, the
distributors’ natural self-interest is to exert their best efforts
on behalf of their corporate group-owned products. Therefore,
Cuervo exercised special care in executing its licensing agreements
to assure its products were entrusted to only carefully selected
organizations that it could trust to nurture and exploit Cuervo’s
products, despite overriding corporate group self-interests.
Cuervo maintains the Guinness/GrandMet merger violated the essence
of the Agreement and the intuitu personae relationship between
Heublein and Cuervo, which had existed for over 30 years, by
allowing the intrusion of Guinness, a competitor, to take over the
corporate group and combine its portfolio of brands with GrandMet’s
portfolio. According to Cuervo, the principles of intuitu personae
alone should justify its termination of the Agreement.
UDVNA does not challenge the applicability of the TBCA
definition, but it contends the definition does not support the
13
magistrate judge’s interpretation of the loss-of-control provision.
Although UDVNA concedes post-merger-GrandMet does not have the
management functions it exercised pre-merger, it contends GrandMet
continues nevertheless to control Heublein (now UDVNA), either by
virtue of its ownership of all UDVNA’s shares, or, in a practical
sense, because GrandMet dominated the merger and former GrandMet
executives control the management of Diageo.
UDVNA maintains ¶ 13(b)(ii) was not intended to address a
change or loss of control of GrandMet or to provide that control is
lost if a second entity also comes to control Heublein concurrently
with GrandMet. According to UDVNA, both the Agreement and the TBCA
definition of “control” contemplate Heublein can be controlled
concurrently by more than one entity; and, therefore, the
magistrate judge erred by interpreting the loss-of-control
provision to require that GrandMet have “ultimate” control over
Heublein by virtue of being the “top company” in the corporate
group.
In support of its concurrent-control interpretation, UDVNA
relies on ¶ 13’s references to Heublein’s “parent company” (“de la
compañia que controle a HEUBLEIN” in the Spanish version of the
Agreement). According to UDVNA, the use of that language to
describe Heublein Holdings, Heublein’s direct parent, reflects the
parties’ understanding that, when the Agreement was executed,
14
Heublein was concurrently controlled by both indirect and direct
parent companies (GrandMet and Heublein Holdings).
UDVNA contends further that the references to Heublein
Holdings contradict the magistrate judge’s and Cuervo’s
interpretation that control means “ultimate” or “top-company”
control. According to UDVNA, Heublein Holdings’ control of
Heublein was not “ultimate” control, because pre-merger-GrandMet
had “ultimate” control of Heublein; Heublein Holdings did not
actually exercise its legal power to direct Heublein’s management,
but was instead simply a holding company established for tax
purposes. Therefore, with respect to “control”, post-merger-
GrandMet is essentially indistinguishable from pre-merger-Heublein
Holdings: both were intermediate non-operating holding companies
subject to control and management oversight by an ultimate parent;
both had the power to direct Heublein’s business through 100
percent share ownership, although neither actively exercised that
power; and both had the power to direct Heublein concurrently with
their ultimate parent’s broader powers. UDVNA asserts that,
because the parties accepted that in 1991 Heublein Holdings as well
as GrandMet controlled Heublein, and because post-merger-GrandMet
holds the same power as pre-merger-Heublein Holdings, it cannot
have lost control of Heublein.
As further support for its concurrent-control interpretation,
UDVNA relies on the TBCA’s establishment of a presumption of
control based on ownership of more than ten percent of a
15
corporation’s stock. TEX. BUS. CORP. ACT ANN. art. 13.02A(5).
According to UDVNA, that presumption illustrates the inclusiveness
of the TBCA’s definition of “control”, as well as the TBCA’s
contemplation that multiple parties can control a corporation
concurrently. UDVNA contends further that the TBCA’s definition of
control does not require the exercise (as opposed to possession) of
the power to control; therefore, the magistrate judge erred by
concluding that Diageo’s exercise of power over UDVNA rebutted the
presumption of control established by GrandMet’s ownership of all
UDVNA’s shares.
UDVNA also contends the magistrate judge erred by concluding:
the concept of control in ¶ 13(b)(ii) could not refer to changes in
share ownership of Heublein because such changes are covered by the
prohibition against share transfers in ¶ 13(b)(i); and, therefore,
¶ 13(b)(ii) must refer to changes in the control of GrandMet rather
than of Heublein. UDVNA notes ¶ 13(b)(i) covers transfers of
shares owned by GrandMet, but not other kinds of transactions that
could result in GrandMet’s not owning a majority of Heublein’s
shares, such as, for example, Heublein’s issuing new shares to
raise capital, which would not be an assignment or transfer
prohibited under ¶ 13(b)(i), but could, as a result of share
dilution, result in GrandMet’s owning only a minority interest in
Heublein, and thus losing control of it.
UDVNA also contests the magistrate judge’s reliance on ¶
13(c)’s omission of transactions such as the Guinness-GrandMet
16
merger from the list of transactions expressly permitted under
that paragraph to support her conclusion that “control” means
“ultimate control” that can be held by only one entity. According
to UDVNA, the fact that transactions such as the GrandMet/Guinness
merger are not expressly permitted by ¶ 13(c) does not mean they
are covered by ¶ 13(b)(ii).
UDVNA disputes the magistrate judge’s conclusion that UDVNA’s
interpretation of “control” is inconsistent with the position taken
by Guinness in its settlement of LVMH’s objection to the merger.
According to UDVNA, the LVMH/Guinness contract definition of
“control event” was different from ¶ 13(b) of the Cuervo/Heublein
Agreement, and was triggered only if a Guinness competitor came to
hold 34 percent or more of the outstanding shares or voting rights
in Guinness; therefore, the magistrate judge misunderstood the LVMH
contract to require Guinness to control its corporate group. And,
because the LVMH/Guinness settlement agreement refers to control
over the combination of UD (Guinness’ spirits business) and IDV
(GrandMet’s spirits business), its requirement that “Guinness”
remain in control could only have been intended to refer to post-
merger-Guinness, i.e., Diageo.
As additional support for its concurrent-control
interpretation, UDVNA contends Texas law requires construing
narrowly restrictions on the transferability of stock. See Tenneco
Inc. v. Enterprise Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996)
17
(“Sound corporate jurisprudence requires that courts narrowly
construe ... provisions that effectively restrict the free transfer
of stock.”).
UDVNA maintains that, even if GrandMet’s 100 percent share
ownership of UDVNA is insufficient to establish control,
GrandMet’s dominance of the merger establishes that it did not lose
control of Heublein. According to UDVNA, although the merger was
structured technically as an acquisition of GrandMet’s shares by
Guinness, it was, in reality, a combination of the businesses, in
which GrandMet was the dominant party. UDVNA notes Diageo is
majority-owned by GrandMet shareholders; is dominated by GrandMet
executives; and represents the continuation of GrandMet’s business
in its prior form, but with a new name and expanded structure.
Alternatively, UDVNA contends the Agreement’s references to
“control” and “merger ... resulting in [GrandMet’s] losing control”
are ambiguous; and therefore, the case should be remanded for trial
so that the ambiguities can be resolved by extrinsic evidence,
including that Heublein twice rejected Cuervo’s attempts to expand
¶ 13(b) to encompass changes in the control of GrandMet. UDVNA
asserts that Cuervo compounds the ambiguity with its insistence
that “intuitu personae”, which appears in ¶ 13(a), affects the
interpretation of ¶ 13(b)(ii).
The interpretation of “control” urged by Cuervo and adopted by
the magistrate judge is reasonable: the Agreement requires
18
GrandMet to exercise the ultimate power to control the management
and policies of Heublein/UDVNA. At the time the Agreement was
entered into, GrandMet headed the corporate group of which Heublein
was a part, and it exercised the power to control Heublein’s
management and policies. Thus, particularly in the light of the
longstanding relationship between Heublein and Cuervo, it is
reasonable to interpret the loss-of-control provision as requiring
that GrandMet retain and exercise ultimate control over Heublein’s
management and policies. The summary judgment evidence lends
support to the magistrate judge’s conclusion that, as a result of
the merger, Diageo, not GrandMet, actually exercises the ultimate
power to control UDVNA’s management and policies.
On the other hand, the interpretation advanced by UDVNA is
also reasonable in that: the Agreement contemplates concurrent
control over Heublein by more than one entity; GrandMet retained
control of UDVNA post-merger, either by virtue of its ownership of
all UDVNA’s shares or its dominance of the merger and Diageo’s
management; and ¶ 13(b)(ii) was not intended to cover changes in
the control of GrandMet. UDVNA presented summary judgment evidence
reflecting that former GrandMet executives dominate Diageo’s
management, and that the key personnel involved in handling
Cuervo’s brands pre-merger continue post-merger to perform the same
functions. In the light of that evidence, the Agreement’s
references to Heublein Holdings as the company that “controls”
Heublein, and the undisputed fact that GrandMet, although no longer
19
the top company in its corporate group, continues to own all
UDVNA’s shares, the loss-of-control provision could reasonably be
interpreted as not applying to the GrandMet/Guinness merger.
In sum, because there is more than one reasonable
interpretation of the loss-of-control provision, it is ambiguous.
See Lopez, 22 S.W.3d at 861; Columbia Gas Transmission
Corp., 940
S.W.2d at 589. Therefore, “summary judgment is inappropriate
because the interpretation of [an ambiguous] contract is a question
of fact”.
Geoscan, 226 F.2d at 390.
B.
Cuervo contends it is entitled to a new trial on damages,
claiming the magistrate judge erred by: holding disgorgement of
UDVNA’s profits was not available as a remedy; and excluding the
testimony of its expert witness, evidence that UDVNA considered
paying Cuervo to reinstate and/or extend the Agreement, and
evidence that, post-merger, other alcoholic beverage brands under
contract to UDVNA canceled their contracts and obtained new, more
lucrative distribution agreements.
1.
UDVNA maintains each cross-appeal issue should be rejected
because Cuervo cannot prove that its damages, if any, were caused
by the alleged breach of the loss-of-control provision. UDVNA
asserts that, because Cuervo does not dispute that UDVNA’s post-
merger sales of Cuervo’s products have far exceeded contractual
20
requirements, Cuervo has not identified any injury it suffered as
a result of the merger. UDVNA notes that, although Cuervo reserved
unilateral power to terminate the standstill agreement on 30 days’
notice, it has not done so, because the relationship has been very
profitable for Cuervo.
UDVNA is not entitled to dismissal of Cuervo’s cross-appeal on
this ground. The parties continued to do business under the terms
of the standstill agreement, in which Cuervo expressly reserved its
right to seek damages for breach of the Agreement.
2.
For Cuervo’s disgorgement claim, the magistrate judge held:
restitution generally is not available under Texas law where a
valid, express contract governs the dispute; and, because UDVNA was
not unjustly enriched and owed no fiduciary duties to Cuervo,
Cuervo’s claim for disgorgement of UDVNA’s post-merger profits was
not excepted from that rule.
As Cuervo acknowledged at oral argument, it did not plead a
breach of fiduciary duty. It further conceded that disgorgement is
not available as a remedy for breach of contract unless the
contracting parties have a confidential or fiduciary relationship.
But, Cuervo maintains that the Agreement’s intuitu personae and
loss of control provisions, which reflect the degree of trust being
reposed by Cuervo in UDVNA, and the degree to which UDVNA’s
unwarranted injection of a third party into the relationship would
21
violate that trust, establish the existence of such a relationship,
which gives rise to the availability of disgorgement as a remedy
for breach of contract.
“In Texas, a ‘fiduciary relationship is an extraordinary one
and will not be lightly created.’ Fiduciary duties do not abound
in every, or even most, garden variety, arms-length contractual
relationships, even those among trusting friends.” Stinnett v.
Colo. Interstate Gas Co., 227 F.3d 247, 253 (5th Cir. 2000)
(footnotes and citations omitted). “[M]ere subjective trust alone
is not enough to transform arms-length dealing into a fiduciary
relationship.” Crim Truck & Tractor Co. v. Navistar Int’l Transp.
Corp.,
823 S.W.2d 591, 595 (Tex. 1992) (internal quotation marks
and citation omitted).
The contract at issue in Crim contained an anti-assignment
provision which included a recitation that “[t]his is a personal
agreement, involving mutual confidence and trust”. Id. at 595 n.7.
The Texas Supreme Court held: “[R]eliance on the cited contract
language as evidence of a confidential relationship is misplaced
[because] [s]uch ‘boiler plate’ language is designed to give the
parties some degree of control over with whom they do business, and
nothing more”.
Id. at 596. Likewise, the Agreement’s recitation
regarding an intuitu personae relationship between Cuervo’s
predecessor and Heublein does not transform Cuervo’s relationship
with Heublein into a fiduciary relationship. Therefore, the
22
magistrate judge did not err by holding Cuervo was not entitled to
disgorgement of UDVNA’s post-merger profits as a remedy for breach
of the loss-of-control provision.
3.
Cuervo challenges various evidentiary rulings. We “review the
trial court’s evidentiary rulings under an abuse of discretion
standard”. Curtis v. M&S Petroleum, Inc., 174 F.3d 661, 667-68
(5th Cir. 1999). See FED. R. EVID. 103.
a.
In a supplemental interrogatory response, Cuervo stated its
damages expert would testify about: Cuervo’s damages and the
benefits to UDVNA, including profits, from the post-merger
relationship with Cuervo. When deposed by agreement of counsel two
weeks before trial, the expert gave indefinite answers as to the
actual damage calculations, repeatedly stating his trial testimony
would show the jury how to calculate damages from a range of values
and it was for the jury, and not him, to determine the amount of
those damages. Finally, after persistent questioning, he estimated
Cuervo’s lost profits as between $50 and $135 million.
The magistrate judge granted UDVNA’s motion to exclude the
expert’s testimony based on the lack of a timely and adequate
written summary of his opinions. The three-sentence supplemental
answer to a written interrogatory was delivered nine months after
the deadline to designate experts, more than three months after the
23
discovery cut-off date, and approximately one month before the
commencement of the scheduled trial. Because, however, UDVNA had
agreed to the designation of the expert, the magistrate judge did
not base the exclusion on the lack of timeliness alone. The
magistrate judge ruled: the supplemental interrogatory response
failed to provide the information required by the local rule,4
Federal Rule of Civil Procedure 26(a)(2) (disclosure of expert
testimony), and the court’s scheduling order; to permit the expert
to testify would substantially prejudice UDVNA because neither the
supplemental interrogatory response nor the deposition provided
adequate information to prepare a defense, in that the expert did
not give the bases of his opinions, perform a damage calculation,
or identify exhibits; and the deposition transcript was inadequate
for the court to make Daubert findings.
In reviewing for an abuse of discretion the exclusion of an
expert witness as a means of enforcing a pretrial order, we
consider four factors: “(1) the explanation for the failure to
identify the witness; (2) the importance of the testimony; (3)
potential prejudice in allowing the testimony; and (4) the
availability of a continuance to cure such prejudice”. Metro Ford
Truck Sales, Inc. v. Ford Motor Co., 145 F.3d 320, 324 (5th Cir.
4
The local rules require a party to provide a written summary
of an expert’s proposed testimony, including all opinions and the
basis therefor, references to exhibits used by the witness, a
summary of his qualifications, and the method of compensation. See
W.D. TEX. R. CV-16(e).
24
1998) (internal quotation marks and citations omitted), cert.
denied, 525 U.S. 1068 (1999).
Cuervo neither provided an explanation for the delay nor asked
for an extension. Cuervo asserts UDVNA’s agreement not to oppose
Cuervo’s motion to designate the expert prevented surprise or
prejudice. The written summary was intended, however, to prevent
surprise as to the content of the expert’s testimony, not merely
his presence. UDVNA’s agreement regarding designation of the
expert did not include an agreement to waive the requirements of
the local rules. The content of the expert’s opinion — damages —
was the central issue to be tried to the jury; therefore,
obviously, the testimony was important and potential for prejudice
inhered both in the inadequacy of the summary and its lack of
timeliness.5 Furthermore, neither party in this action sought a
continuance.
There was no abuse of discretion in excluding the expert
testimony.
b.
The magistrate judge granted UDVNA’s motion in limine to
exclude evidence that UDVNA or its affiliates considered paying
5
As to the fourth factor, Cuervo maintains the prejudice
caused by unjustified delay can be cured on remand. We hardly need
mention that, if this were true, the mere presence of an
intervening appeal would cure every delay-related prejudice.
Furthermore, we are not considering the factors de novo, but rather
the circumstances surrounding the magistrate judge’s decision in
order for us to determine abuse of discretion vel non.
25
Cuervo to reinstate and/or extend the Agreement, holding such
evidence was not relevant and was inadmissible under Federal Rule
of Evidence 408 (offers to compromise).
At a hearing before the magistrate judge, Cuervo’s counsel
explained that, before Cuervo learned of the proposed merger,
GrandMet made pre-merger internal studies valuing its relations
with Cuervo at more than $100 million and prepared documents
reflecting that it was considering paying that amount to Cuervo to
compensate for the change of control. Cuervo asserts that, because
it did not know about the proposed merger, there was no dispute and
therefore Rule 408 did not apply. Finally, it maintains evidence
of the value UDVNA placed on its relations with Cuervo is relevant
to demonstrate: retention of the Agreement had value to UDVNA; and
UDVNA would be willing to pay Cuervo a substantial sum to avoid the
consequences of the change of control effected by the merger.
UDVNA responds that evidence regarding an internal discussion
concerning the potential cost of settling Cuervo’s expected
challenge to the merger by entering a new or amended distribution
agreement for an extended term is not relevant to the measure of
breach of contract damages. Also, because of Cuervo’s long history
of challenges to transactions involving Heublein, GrandMet
reasonably believed Cuervo would challenge the merger and that
settlement negotiations would ensue; therefore, because the claim
was likely, Rule 408 precluded admission of the internal settlement
discussion in anticipation of a formal claim. It asserts the
26
discussion was not relevant to show UDVNA valued its contracts with
Cuervo; that fact is undisputed.
Finally, UDVNA contends Cuervo’s proffer was inadequate: it
handed the settlement memo to the magistrate judge for the first
time in connection with its request for reconsideration of the
magistrate judge’s decision to exclude it; and, before the
magistrate judge ruled on the requested reconsideration, Cuervo
abandoned the trial. Cuervo responds that the proffer was adequate
under Rule 103(a)(2) based on counsel’s description of the
evidence.
We agree with the magistrate judge that the evidence is not
relevant: it is not a measure of damages; and UDVNA’s valuing the
contract is not at issue. Therefore, even assuming the proffer was
adequate under Rule 103 and the evidence admissible under Rule 408,
there was no abuse of discretion in excluding the evidence of the
discussion.
c.
UDVNA moved in limine to exclude evidence that, post-merger,
other alcoholic beverage brands under contract to UDVNA canceled
their contracts and obtained new, more lucrative distribution
arrangements in the open market. The magistrate judge ruled the
evidence was not relevant. (The ruling was without prejudice to
Cuervo’s seeking reconsideration if the trial demonstrated the
evidence was relevant.)
27
Cuervo asserts the evidence is relevant because: it supports
Cuervo’s claim it could have obtained a more lucrative new contract
with another distributor in the open market; and shows that the
right to terminate because of UDVNA’s loss of control was valuable.
That Cuervo’s right to terminate the Agreement was valuable,
even if true, has no bearing on the quantum or existence of
Cuervo’s alleged damages. Moreover, the magistrate judge had
discretion under Federal Rule of Evidence 403 to exclude the
evidence on the basis that it was likely to create a distracting,
confusing sideshow.
Cuervo, as the other parties who held contracts with UDVNA,
could have sought a new distribution agreement on the open market,
but voluntarily chose to continue to do business with UDVNA under
the standstill agreement. Therefore, there was no abuse of
discretion in finding the evidence of the third-parties’ conduct
not relevant.
III.
For the foregoing reasons, the dismissal of Cuervo’s damages
claims is AFFIRMED; the summary judgment on the “loss of control”
issue is VACATED; and the case is REMANDED for further proceedings
consistent with this opinion.
AFFIRMED in part; VACATED in part; and REMANDED
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