cock smith in dallas texas my client is a small maker of energy drinks called jacked up it entered into an eight year licensing agreement with what was at the time the third largest player in the coffee and tea business in america lee under this eight year license agreement sara lee would distribute jacked up energy infused teas and coffees to tens of thousands of convenience stores nationwide is said to be a lucrative arrangement for both checked up in sa however just three weeks into this multi year agreement sara lee acting at the behest of an even larger food conglomerate smucker breached and repudiated this license agreement with jacked up now naturally this wrongful conduct lee and smucker gave rise to a market basket of contract tort claims against both brought by jacked up that's lengthy spoke to each and every one of these claims in a sweeping summ and of course pick up on the breach of contract your reply brief makes what i think is a much better argument about the breach of contract than the one it seems like you pushed in front of judge lindsey did that the anniversary date is really just a five year license term expiration the argument you make in your reply brief which is basically that it is every year that you can file this this notice that you want to try but it's only effective on the anniversary date for it to procedural questions about that did you adequately raise that before judge lindsey and your principal brief here is question one question two if not does it when we're terminate a contract are we bound by the party's arguments or do we just try to find what is the plain meaning of the cut cost we're here on day novo review question of law interpretation of a contract we have at all stages of these proceedings urged ambiguity ambiguity is the argument that argument may be a little more refined on this question of law here in the fifth circuit than it was in the district court but their argument that the basis ambiguity is the same and we are here on day over review so i think we're well within our rights to argue a robust interpretation of the one of my first question did you advance that interpretation to the district court your honor was mr schmitz the principle of jacked up his understanding his interpretation of section fourteen b which is in the record in his declaration and elsewhere that was the understanding that he argued for now mr schmitz is not a lawyer once we took a look at this as an issue of law i think we refined that interpretation but the ambiguity remains the the reply brief argument is that it's ambiguous w should therefore remain for parole inquiry yes your honor we think that this section fourteen b is ambiguous which is a fact issue for a jury for and for a number of reasons first and foremost among those judge taken sin is that section fourteen b is at war with the rest of section fourteen and if you look at it at this provision and i would invite you to turn today in your record excerpts of tab eight it's page nine thirty four in your consecutively paginated record or if you're going from tab eight it's pages six and seven in the record excerpts you've got this five paragraph terminations section section fourteen and it starts with section fourteen a which describes very carefully it terminations for cause scenario ninety day terminations for cause window with an opportunity to cure and then if you skip ahead to fourteen see that continues this very in depth discussion of under europe refined argument i'm surprised you're not arguing it's unambiguous in your favor because your position is the defendant's argument the judge lindsey excepted renders fourteen be the perfect us and you say there's no logical reason for that sixty day carve out in last the determination is affective on the anniversary date which case the sixty day carve out allows people time to ramp down their operations maybe look for other arrangements it's sort of an advance notice thought it meant and what the of what smucker and sara lee is going to argue there's that it meant it and i understand your position on ambiguity so if the fourteen b does have this in cancun any of the sixty days but it doesn't say that if proper notice terminations affective when but the question would be logically on the anniversary but you're saying it's not in the language in the let's say you're right and therefore it's ambiguous as to that terminations effective when  can you point to any evidence parole evidence that's in the existing record that shows that the parties did intend it to be that way well i think we don't even need to go to pro i'm just curious kind of the pot when mr smith says declaration that snit's was saying it was effective on term rights or anywhere in the record that it it suggested that the parties thought that this was a somewhat plain vanilla we give notice before sixty days and then upon the anniversary is there anything the record they will terminate your honor if you look at the e mail exchanges between the parties as this is drafted it really doesn't go into that that kind of depth and that's why i think this is this is an ambiguity that's what we've teed it up as an ambiguity rather than saying as judge cost us suggested that we win as a matter of law i think there is an ambiguity here that requires pro evidence because this just doesn't make any sense judge a concern as it exists within the framework of fourteen a think about it this way or honors why would you need a ninety day terminations period if  you can cancel without for cause if you can cancel without cause for any reason or no reason at any time well i got i will hear what sara lee has to say but what if they just thought they were very perceptive it was sharp dealing had negotiated the original one with the other portions of fourteen as you point out but then they decided they wanted an advantage and both of you are mutually drafting this and you exceed it to it then i think that would reinforce and further strength our fraudulent inducement claim it would but but isn't there trouble with the floor until inducement as to damages if if you acknowledged elsewhere you're not seeking sort of reliance damages well no i think there is this entire period of pre hiring a marketing company to develop a trade dress on that theory which makes sense to me would you have a best case on fraudulent inducement that would be independent of whether there's a breach or know what other words you saw the district court said well you couldn't separate cause of action particularly here where there's forget the authority that he cited when he said that wouldn't be possible let me direct you judge a concern because i think it speaks to this too consecutively paginated record page nine thirty six which is under  twenty miscellaneous subsection c entire agreement this is what passes for a merger clause in this contract and it's not much of a merger clause judge taken since it reads the agreement constitutes the entire agreement between the parties as to the contractual period it doesn't deal with the pre contractual costs hundreds of thousands of dollars of costs the jacked up incurred developing these products developing their trade dress in developing the trademarks and it doesn't it i no way deals with that free contractual period it's one of the weakest merger clauses i've ever seen and to the extent that judge lindsay disposed of our fraudulent inducement claim because our reliance was on reasonable i think he  to analyze this that this is not the sort of merger clause that explicitly disavows all representations and gives fair warning to a smaller party dealing with a much larger much more sophisticated party of not to rely on those were  representations the only basis for judge lindsey disposing of are fraudulent inducement claim as well as our contract claim and as well as our tortious interference claim against smucker with his interpretation of section fourteen b which i would respectfully suggest is just not commercially reasonable and particularly in light of the larger context of this track where it's at war with section fourteen a at war with fourteen seven fourteen see at war with fourteen d and also of the damages they attack your lost profits yes damages model saying it's a new product that's unavailable putting that to the side for the second are those the only damages you see what about reliance damages yeah i think there's two distinct buckets of damages here  you know in our pleading and then in the four years worth of discovery that took place those pre contract will reliance damages business opportunities that we passed on we didn't get about the schmitz deposition when the attorney on your side interruption says the plaintiff has not made a claim for reliance damages we've not set forth any expert opinion on the lines damages well i think there's a difference between an expert of opinion and we have a fraudulent inducement and a fraud claim that are seeking forget the second sentence the plaintiff in this case has not made a claim for reliance damages i'm not sure that a statement of that deposition i just disagree with that because i'm not familiar with that passage in the deposition but this is you know this a pretty straightforward fraud and fraud inducement classic bait and switch case and that's how that's how we we played it and that's how we would have tried it had we been given our day in front of a jury and i think just an examination of the second amended pleading makes that makes it pretty clear they relied on that if the lawyer now we're not seeking reliance damages and so based upon that they didn't take any action with regard to that now you're saying well he might have said that but it didn't mean anything your honor that wasn't a basis for the district court's grant of summary judgment if this court goes with me today on the ambiguity of section fourteen day b there's going to be a reman and they'll be adequate lost profits and their primary objection to the lost profits is this illinois new business rule so called that your colleagues on the seventh circuit have referred to as i believe a failed experiment it's set its legal status is unclear to me but more importantly as a matter of law this is not a new business this is the third largest player in coffee and tea in america at the time of this transaction entering into a license agreement for a new product as part of an existing business a very robust but it was a new product so we don't know or at least i would think you'd be difficult to say was it going to be a successful product or not there were no stores that had been contracted to sell the item your experts report  it so many stores and it would have sold so many cases it where does that come from it can we reasonably rely on that expert predicting how many stores are going to sell it and how much was going to sell at each store when it's a new product that has not been on the market and with the thought of me that's a consummate fact issue for a jury that's exactly what we need a jury to deal with it could be a battle of the the experts and if  trial judge when he wants to exclude something is overly speculative or to disqualify an expert we'll get to that in due course but that's not what we're here about today and that was not a basis for judge lindsey's grant of summary judgment he did not grant summary judgment based on this last profit business that's a a sole back argument in a tacit concession that fourteen day is ambiguous there kendis court affirmed summary judgment on other grounds and those i did by the district court as a procedural matter if it  can your honor i would just suggest that they consummate a fact issue and that a big part of our damages model would be sarah lee's own estimates projections thought process if you look at the providence decision that they offer which which points out record judge lindsay's summary judgment opinion the court agrees that the plaintiffs have submitted evidence in the record that supports the claim for fraud common law fraud that's an extraordinary statement in order granting summary judgment  are well aware arises from a license agreement between jacked up on the one hand sarah lee on the other shortly after the license agreement was signed the smucker company acquired certain of the assets of sara lee decided for its own or is its own independent business reasons not to acquire the license agreement at issue shortly after that the evidence is undisputed that sara lee offered to perform the  that's required by section seven of the license agreement mr schmitz testified in a corporate rep deposition that that was really quickly offered to him by sara lee and he unequivocally and absolutely refused to engage in that market test which is required by section seven as a result rather than do the test he sued saw hundreds of millions of dollars and lost profit damages and that's why we're here today but your argument for the other side reached provision it says either party shall have the right to terminate and then list a condition if it provides written notice to the other side no later than sixty days prior to the university of debate the second the condition if it provides a written notice i think there's no doubt that it's unambiguous as you read it that the notice to the other party can be provided within any gear because the anniversary's every year but it just can't be provided sixty days prior to the anniversary date the other ten months you can provide the written notice at any time but it seems to me what's and what's not directly addressed by the way which is when the terminations is affective it says because going back to the first part since we i'm agreeing with you on the second part of when the written notice has to be provided either four corners of the contract the court can infer that because of how other provisions are read that this terminations are fourteen b would be terminated immediately upon those reason i say that as a section fourteen day the terminations effect of purchased by a third party company that that sara lee wanted that right to get out of this contract in the event its assets were purchased by someone else that's not inconsistent with jacked up reading because sure if if six months into the contract scar then it can get out but it year end legitimation is judge lindsey go into this what you call the four corners analysis and then even extrinsic evidence you're citing to determine when the effective dat is ambiguous and with respect to that provision there is no dispute as sara lee was obligated to facilitate a market test of these products there is no dispute and it comes from mr schmitz is testimony that market test was offered and there's no dispute that mr smith's for his own reasons refused to perform at market test second fourteen for a second if you're right that this was not raised at all the new jacked up refined theory of the contract does that boras from considering it or i know statutory interpretation for example the supreme court has said you don't have to you're not bound by the party's arguments because we're trying to figure out what congress or state legislature intended is it the same thing with the contract where we're just trying to look at the plain meaning of what the parties intended or are we restricted by what the parties argue what is that of a review and and i would say that i believe that that argument's been waived since it was raised person the reply brings in any of it under illinois contract interpretation law we don't get to ambiguity in less i guess a prerequisite to that analysis requires that the party asserting ambiguity propose a reasonable counter interpretation than that than than what's been proposed by the other party and here the only interpretation that ever was a spouse was this argument that the anniversary was only it only occurred every once every five years as a result we don't think we get to the ambiguity question because that's the only court that's the only provision that when on the actual anniversary date you can cancel immediately your the d d well we know from the extrinsic evidence the reason it was requested it was requested for the precise reason that occurred that certain assets were acquired and and as a x chose to to rely on that provision among the section seven termination to get to get out of that contract but your honor if you look at section six just staying within the four corners of the agreement if you look at section six a for example section six a of the contract requires the parties to meet yearly to talk about how they're going to market the product the following year so it makes sense that the parties would carve out a two month period to allow them to assess the prior year in plan for the next and that was a confession requirement that's at six a now to be sure if if the results of that marketing meeting didn't satisfy either of the two parties either of the two parties could terminate immediately in the following year with this sort of two month what i'll call a cooling off period allowed the parties to do some work that will require to allow them to evaluate their business and decide if they want to continue so there's there's evidence in the four corners of the section again no one's ever argued that seven section seven of the market has a requirement is ambiguous and the evidence is very clear that sara lee terminated also not just in accordance with fourteen b but also in accordance with section seven and again the court need look no further than jacked up own corporate rep or representative deposition to find that sara lee made the offer and mr schmitz refused it for his own reasons for you today has been there two ways to look at fourteen b at will the media or at will on an anniversary we sort of for the moment i'm not saying it speak for the panel put put aside the principle the brief they the party can't rely on oral statements if the contract is unambiguous so we have to accept your proposition i guess that's that's correct yeah i think that's right and we need to we maintain obviously that the language of fourteen b and illinois cases cited we perturb it would help me to know the one you think is the most point yeah i can't name for you illinois case i can name a number of texas cases that judge lindsey relied on and then in there's a footnote in our brief can't rely on a statement that well we're not going to force the contract and and the same is true here in a sense that the representations that the plaintiff are allies on are representations that we're not going to terminate we're not going to exercise these terminations provisions we're going to we're going to keep this going long enough to recoup our expenses year after year that directly contradicts section seven which says it's a five year remit subject to the other termination transaction and again smucker only acquired certain assets not all of them and that the folks that remained a sara lee picked up the phone called jacked up and said we'd like to perform this market test to install the equipment do the things that are required under section seven so the short answer is yes your honor we sara lee did say it would perform the the market test and it was only after that jacked up said no and sued us did we send a notice a termination that was in accordance with both fourteen b and section seven i'd like to say a few words about damages the the the jacked up is is seeking  to see those kinds of damages and in to be sure defendants relied on that when it's a minute an expert report in this case it only included last profit damages there were no representations about reliance damages there were no representations about these hundreds of thousands of dollars in realize expenses that we're hearing about for the first time today the the experts were only dealt with lost profits and we've we've argued that those lost profits are not available under the illinois  business rule we've also argued that those lost profits are available under texas law because they're too speculative and more importantly they're not supported by competent evidence at the summary judgment stage or you know damages which wasn't reached by the district court rests on three components one as to reliance damages the concession as a consequence of damages either as a matter of law a new business rule or even if there are exceptions they didn't make their fair probability showing that's essentially your contract that's right that had a fourth year honor which was that the summary judgment record had no evidence of jack damages the only evidence in the sea you know comes down to that janet report and whether there's authority for us to essentially make a don't care finding that it's not reliable or admissible otherwise it's a big chunk of predicted consequential damage it is and it's it's on it it's inadmissible for the simple reason that it's not verified it's not signed and it's on sworn in the physical law and type of thing there were a district judge ruling in the first instance might say inadmissible but i'm going to let you file a corrected well what's interesting your honor is is we filed in addition to a motion for summary judgment we filed a motion a separate motion to strike that expert report because it was it was not signed or verified that in mind using these effects under our local rules are twenty one days to file a response and during those twenty one days jacked up could have very easily supplemented the summary judgment record to include a the that motion was never ruled on in the court as you pointed out never reached this issue of damages but again i fall back and say that for a the court can rely on any fact that's in the record it's very easy to look at the summary judgment record and see that that expert report which again is the only evidence of damages in the record is both unsigned and a verified interface circuit precedent and person in the northern district of texas that three of us resort interrupting saying it's discretion when we asked the court exercises discretion here in and exclude that evidence and again for two reasons one because it's obvious on its face that it doesn't meet the sort of threshold requirements for  issue also wasn't raised before the district court but it bears noting that that expert and this is this is spelled out in the daubert motion that we filed in the in the lower court that to be sure some of the information in there is based on a pro forma prepared by sara lee what what's important for the court to understand is that sara lee actually performed close to ten pro forma us at various different tolerances of risk levels of how they thought this would run that expert chose among the  ten it could have chosen from it chose the one that sarah least internal people called the gang busters pro forma the one that assume that everything went right from that gangbusters pro forma this expert then  increased the gangbusters by a number of percentages i believe was twenty three and sixty percent thinking they would do even better than sara lee ever expected and again those reasons are spelled out in the daubert motion which the court denied as moot in light of the summary judgment opinion that it granted it put differently or honored had its own formula when sara lee acquired certain of those assets we talked about sara i'm sorry smucker acquired the infusion of teas and those are still being marketed today and what's significant about that is  the smucker infusion teas used the exact same formula which is in the records in the sealed portion of the record that sara lee used well before it met jacked up so to the extent that jacked up argues that  ker took a trade secret this is one of those rare trade secret cases where you can tell directly in the record that no such trade secret was misappropriate or hughes because we have the formula that existed before we met jacked up and we have the formula that's made please a court just a couple quick thoughts in rebuttal first pick up where i left off which is with judge lindsay's acknowledgement that quote the court agrees the plaintiff has submitted evidence in the record that supports its claim for fraud in the world record is emphasized on one page sixty six eighteen i didn't hear anything from counsel opposite about i think the very clear procedural error that judge lenzie made in applying a twelve the nine b standard as a rule fifty six stage i think that alone on the fraud claim without extraordinary acknowledgement in on the face of his order that there is evidence to support the fraud claim warrants reversal  to section seven of the license agreement i'm actually glad that my colleague raised that because i think it's further evidence of the ambiguity of section fourteen b has just as section fourteen b wars with fourteen a fourteen c in fourteen d it also wars with this testing period terminations term in section seven that there is at the outset of the contract a testing phase that if the results don't go in sara lee after her best efforts an unreasonable determination then there's an ability to cancel without penalty well again what sense does that make fourteen b is interpreted as judge lindsey did where it's an all purpose no fault anytime you want terminations laws not only would that reading a fourteen be negate fourteen a fourteen b and fourteen c it would also take out about half of section seven determination clause as to their argument that it was jacked up that breached first that too is a consummate fact it should indeed when i do present my patient on jury charges but who breached first is the question i use as that is the very example of the jury charge they're saying we breached we think they breached first and i think if your honour's think about the circumstances of this breach where it's a small company that thinks it's ship has come in with his eight year license agreement with the third largest player in coffee and tea in north america the last thing more wanting to do is breach we had a good faith and reasonable belief that they breached first and if they want to argue that we breached first let's sell let's take that up with a jury and certainly judge lindsey did not reach that in his in his summary judgment order and again the circumstances of this for it with i think the timeline is important here your honour's jacked up scrambles madly from april twenty seventh when they first have contact with sara lee october first two thousand and eleven to put these products together to get them ready for market and most importantly to have them make their do  this national association of convenience stores tradeshow the largest trade show of its kind in chicago october first through fourth so when a couple days before that huge trade show starts that would have been the goal  their these products at that trade show the larger more sophisticated party shows up and says hey we'd like to insert this weird little too long line provision into this contract fourteen b they have all the leverage they have to bargaining power it's either ambiguous or it's it's a fraudulent inducement because again there's evidence in the record from mr schmidt and other others that this was accompanied by statements oral statements that they weren't going to be selling the business beverage business any time soon that there was no sale in the works all of that was false and they knew it this transaction was smucker did not know pun intended overnight it was a multi month process they knew it they never disclosed that they snuck this fourteen b this weird sloppily drafted sloppily drafted by them provision in but a contract given that story which is a compelling one that jacked up wouldn't have breached whether we conjecture as to it or not in your acknowledging it's a weird little thing they muscled in at the end then the inconsistency with the other provisions isn't really making anything ambiguous it's just that they put in trademark attorney not corporate counsel for what it's worth a trademark prosecutor and again if you look at the e mail exchanges in the record these are not sophistic on our side corporate attorneys doing sort of corporate style drafting but you're an american play by answer your  n that at the end of the day this is either ambiguous or it's fraudulent inducement we've argued both we'd like our day in front of a jury on both thank you