Seventh Circuit. DH2, 422 F.3d at 592. Second, the lawsuit was not dismissed because the
Seventh Circuit determined the mutual funds have the discretion to use fair value pricing.
12/12/06 Tr. at 1296-97. Rather, the opinion makes clear that the lawsuit was dismissed because
the Seventh Circuit held that DH2 lacked standing to challenge the “notice-and comment
rulemaking requirements.” DH2, 422 F.3d at 595-97. Any comments by the Seventh Circuit
regarding “fair value pricing” were dicta and not relevant to the merits of the lawsuit. The
Court’s admission of and instructions related to the DH2 lawsuit are thus irrelevant, confusing,
misleading and unfairly prejudicial.

12, Emerald properly mitigated its damages.

Emerald acted reasonably to mitigate its damages. Any implicit finding by the jury that
Emerald should have invested in treasury notes for some amount of time (the only alternative
investment presented by Allmerica) is without any basis in law or fact.’ As David Hokin
testified, Emerald has never invested in ten-year treasury notes, 12/12/05 Tr. at 1467-69, the
value of which may substantially increase or decrease in value based on changes in interest rates.
Id., 12/11/06 Tr. at 1209-11 (testimony by Dr. Carron). Emerald would receive a guaranteed
amount on a ten-year treasury note only if it held it for all ten years. This alleged alternative was
much riskier than Emerald’s trading strategy. As a matter of law, it was not reasonable for
Emerald to invest in riskier items entirely different from that in which Emerald had expertise.
See 11 Samuel Williston, A Treatise on the Law of Contracts § 1353 (3d ed. 1968); RIV VIL, Inc.
v. Tucker, 979 F. Supp. 645, 660 (N.D. Ill. 1997); Pioneer Bank and Trust Co. v. Seiko Sporting
Goods, USA, 540 N.E.2d 808, 812 (III. Ct. App. 1989); R.E.B., Inc. v. Ralston Purina Co.,

525 F.2d 749, 756 (10th Cir. 1975). Further, Emerald doing so would have resulted in it

4 There was also no basis in the evidence for the jury’s determination of the amount by which

Emerald should have mitigated damages.

15
108776v6


2. Emerald’s proposed Verdict Form properly allowed the jury to
consider Emerald’s position, not just those identified by the Court.

Emerald properly objected to the Court’s verdict form. Emerald’s proposed verdict form
should have been used. Emerald’s verdict form Alternative No. 1, unlike that submitted to the
jury, allowed the jury to award damages based on benchmarks, past profits, academic studies, or
Rubin’s analysis. Alternative No. 2, offered solely based on the Court’s insistence that any
proposed form address the Scudder issue, stated the Board of Trustees’ options consistent with
the Participation Agreement’s requirements. Alternative No. 3 should have been used in place of
the Court’s proposed form, which had the problems identified above, which was eliminated by
Emerald’s proposed, but rejected, alternative. 12/14/06 Tr. at 1631-33.

A new trial is also warranted because the Court instructions nos. 14 and 9 were incorrect
and should not have been given. Court Instruction No. 14 misstated the Participation
Agreement’s requirements (DX 414) by omitting the requirement that the Board, in light of its
fiduciary duties, needed to determine whether it was necessary to terminate Scudder’s
relationship with Allmerica or refuse to accept Allmerica’s omnibus trades. Emerald’s proposed
instruction corrected this error and should have been given. Court Instruction No. 9 misstated
the law regarding the proof Emerald needed to adduce to establish the amount of its damages and
the proof Allmerica needed to offer to establish the amount by which Emerald’s damages should
have been reduced if the jury found that Emerald failed to properly mitigate its damages. To
establish the amount of damages, Emerald needed to present only evidence that tended to show a
“basis for the computation of damages with a fair degree of probability.” Jabat, 201 F.3d at 857.
For mitigation, Allmerica needed to show that Emerald’s damages should have been reduced by
a “particular amount.” The first is based on clear Seventh Circuit law that was cited to the Court

and the second is based on the Illinois Pattern Jury Instructions, which should be given in cases

108776v6


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Trustee f/b/o
EMERALD INVESTMENTS LIMITED
PARTNERSHIP, and EMERALD
INVESTMENTS LIMITED PARTNERSHIP,
an Illinois Partnership,

Civil Action No. 02 C 5251

Judge Grady

v.

)

)

)

)

)

)

)
Plaintiffs, ) Magistrate Judge Mason

)

)

)

ALLMERICA FINANCIAL LIFE )

INSURANCE AND ANNUITY COMPANY, )

)

)

Defendant.

PLAINTIFFS’ MEMORANDUM SUPPORTING THEIR
RENEWED RULE 50 MOTION FOR JUDGMENT
AS A MATTER OF LAW AND RELATED RULE 59 MOTION FOR A NEW TRIAL

Charles S. Bergen (#6186596)

George R. Dougherty (#6196945)

Peter S. Roeser (#6257273)

Claudia M. Laurens (#6270144)

Daniel M. Hinkle (#6283092)

GRIPPO & ELDEN LLC

111 South Wacker Drive

Chicago, Illinois 60606

(312) 704-7700

Email: gdougherty@grippoelden.com

108776v6


incurring a $250,000 surrender fee, an unreasonably large amount compared to potential returns
from the note. See Tr., 12/12/06 at 20-21 (testimony of Dr. Carron regarding surrender fee);
Yang Ming Marine Transp. Corp. v. Okamoto Freighters Ltd., 259 F.3d 1086, 1095 (9th Cir.
2001) (plaintiff not required to mitigate damages where would require additional $25,000
expenditure), Because Allmerica could have itself mitigated Emerald’s damages by waiving the
surrender fee so that Emerald could invest in other alternative investments but failed to do so, it
may not argue that Emerald acted unreasonably.

13. Comments made during closing argument warrant a new trial.

A new trial is required because of Allmerica’s improper arguments during closing
argument, Claiming that Emerald was taking advantage of “ordinary citizens” was prejudicial,
appealed to the jurors’ own self-interest and was done in defiance of the Court’s ruling on
Emerald’s motion in limine regarding evidence of public policy and dilution. Calling Emerald’s
trading “theft,” and misleadingly arguing that Emerald was not entitled to recover any damages
because Emerald supposedly took steps to hide its activities from other funds, see, e.g., 12/14/06
Tr. at 1700-01, 1744-45, and failed to hire an expert even though it obviously had the “money”
to do so was also improper. /d. at 1735-36. Moreover, counsel knew it was fundamentally
untrue since Emerald had hired Dr. Buser to testify. Further, Allmerica wrongfully told the jury
that Emerald was not entitled to damages because they were “greedy,” wanted “one more big
score” and wanted to “take money from another set of ordinary investors” (Allmerica’s
shareholders), and that the jury should “tell [Emerald] they took the money from the small
investors, they lined their pockets for years, they don’t need anymore.” /d. at 1750-51. In
addition to being contrary to the Court’s ruling on Emerald’s motion in limine to exclude public
policy and dilution evidence, these comments were prejudicial and misleading (Allmerica’s
“ordinary shareholder” is in fact Goldman Sachs) and constitute plain error.

16
108776v6


6. Incomplete and unauthenticated documents should not have been
admitted into evidence.

Over objection, the Court allowed Allmerica to place into evidence parts of documents
for which proper foundations were not made. For example, the Court allowed “Board minutes”
into evidence despite a complete lack of testimony concerning their authenticity and foundation
to qualify within a hearsay exception. Such evidence was highly prejudicial, and Allmerica
knew months before the trial of its incompleteness. All such evidence should have been
excluded, including DX 906, 941, 942, 943, 944. It was also error for the Court to admit DX 728
and 904 for the reasons stated on the record during trial. The documents lacked sufficient
foundation, were not properly authenticated by any witness, contain hearsay, and were admitted
after the close of both parties’ evidence and thus after Emerald’s chance to examine the
witnesses about them had passed.

1. Exclusion of the March 11, 1999 draft letter.

Emerald informed Scudder of its desire to trade frequently pre-contract. Nevertheless,
the Court excluded testimony regarding Scudder’s pre-contractual agreements to allow Emerald
to make as many transfers as it wished, including written admissions reflecting those agreements.
See PX 4, 5, 192. This evidence would have been relevant to the issue of whether Scudder
would have continued to accept Allmerica’s omnibus trades, which included Emerald’s trades. It
also would have supported the testimony adduced on this point from Emerald’s witnesses.

8. Plaintiffs’ Exhibit 279.

PX 279 was relevant to the Scudder issue and should have been submitted into evidence.

Evidence that fund managers were willing to accept 5% market timing money refuted

and different programs. Admission of such evidence was especially unfair in light of Allmerica’s
counsel’s arguments in closing that Emerald was stealing from “ordinary citizens” and “investors.” Many
jurors were “ordinary citizens” and investors with 401(k) accounts.

13
108776v6


injected material error into the trial such that even if judgment is not appropriate in favor of
Emerald, a new trial is warranted.

Cc. Emerald Was Entitled To Present Its Damages Theories To The Jury, Not
That Mandated By The Court.

Instructing the jury that Emerald’s lost profits needed to be based solely on particular
trades the jury found “Scudder would have permitted” was error. There was no valid economic
or legal reason for the Court to mandate that only a particular hypothetical be considered by the
jury. Emerald was entitled to present its damages claims to the fact finder, and it was the fact
finder’s duty to select which damages hypothetical provided the best estimate of Emerald’s
damages. Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1372 (7th Cir.
1990) (the “essential thing is that the evidence enable the jury to come up with a figure that
represents a reasonable estimate of the plaintiff's damages”); Medcom Holding Co. v. Baxter
Travenol Lab., Inc., 106 F.3d 1388, 1400 (7th Cir. 1997) (“We emphasize that the calculation
and assessment of damages is a question of fact that is reserved for jury”).

Specifically, Emerald should have been permitted to present its damage theories through
its disclosed expert, Dr. Steven Buser. First, Dr. Buser should have been allowed to testify
regarding damages measured as of the time of breach. Dr. Buser used, consistent with Illinois
law, a discounted cash flow to create a reasonable estimate of Emerald’s damages as of the time
of breach. Dr. Buser’s methodology was well-recognized in law and his estimate would have
been helpful to the jury. Gross v. Comm’r. of Internal Revenue, 272 F.3d 333, 340-41 (6th Cir,
2002) (experts employed discounted cash flow method); Henry v. Champlain Enter., Inc.,

288 F. Supp. 2d 202, 221 (N.D. N.Y. 2003) (denying Daubert motion where expert applied
discounted cash flow method); Koch v. Koch Indus, Inc., 2 F.Supp. 2d 1385, 1407 (D. Kan.

1998) (stating that the “discounted cash flow method for valuing income-producing assets is

108776v6


Life Ins. and Annuity Co., 304 F. Supp. 2d 1009 (N.D. Ill. 2003) (summary judgment decision),
reaffirmed at 2004 WL 785049 (N.D. Ill. April 9, 2004) (denial of motion for reconsideration).
Allmerica’s breaches prevented Emerald from deploying its trading strategy and resulted in a
significant loss of profits for Emerald and its investors.

Trial concerning the amount of damages due Emerald from Allmerica’s breaches
commenced on December 4, 2006. It lasted seven days. Unfortunately, the trial was marred by
numerous errors. Despite these errors, the jury returned a verdict in favor of Emerald and against
Allmerica in the amount of $1,131,737. Emerald also was awarded by the Court the amount of
the surrender fee that Allmerica wrongfully kept when it breached. Judgment was entered
against Allmerica and in Emerald’s favor on December 19, 2006. This motion is filed within the
ten-day period provided for in Fed. R. Civ. P. 50 and 59.

ARGUMENT

IL. Emerald Is Entitled To Judgment As A Matter Of Law Under Fed. R. Civ. P. 50
And A New Trial Under Fed. R. Civ. P. 59.

A. There Was No Requirement that Emerald Prove What Scudder “Might
Have” Done Had Allmerica Not Breached to Recover Damages.

There is no requirement in contract law that Emerald prove what a third party, in this case
Scudder, “might have” done had Allmerica not breached the Annuity Contracts. As Allmerica
correctly stated in its Motion in Limine No. 1, the Seventh Circuit and courts within this district
have “repeatedly held that a party’s relationship and dealings with a third party are irrelevant to a
breach of contract claim.” /d. at 2 (citing numerous cases). Allmerica’s statement of the law
was correct, and its attempt to disavow the statement, see 11/30/06 Tr. at 32-34, does not alter
that fact.

Whether Scudder would have accepted Emerald’s submitted trades will never be known

with certainty because of Allmerica’s decision to breach and not submit Emerald’s trades. The

Z
108776v6


Plaintiffs (collectively, “Emerald”) submit the following memorandum in support of their
motion for judgment as a matter of law under Federal Rule of Civil Procedure (“Fed. R.
Civ. P.”) 50(b) and for a new trial on the amount of damages owed to Emerald as a result of
Allmerica’s material breaches of its Annuity Contracts. See Fed. R. Civ. P. 59.

APPLICABLE STANDARDS

Judgment as a matter of law under Fed. R. Civ. P. 50 is appropriate when “there is no
legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue.” Fed.
R. Civ. P. 50. A new trial is appropriate under Fed. R. Civ. P. 59 when the “verdict is against the
weight of the evidence,” or the trial was not “fair to the moving party.” General Foam
Fabricators, Inc. v. Tenneco Chems., Inc., 695 F.2d 281, 288 (7th Cir. 1988).

RELEVANT BACKGROUND

Emerald and Allmerica agreed to the integrated Annuity Contracts! in March 1999.
Under the Annuity Contracts, Emerald was entitled to freely transfer funds among investment
“subaccounts.” PX 1,2. Allmerica had separate contracts with subaccount providers, such as
Scudder, pursuant to which the providers made investment vehicles available to Allmerica. Id.;
see also DX 414 (Participant Agreement).

Emerald invested $5 million in the Annuity Contracts based on the promises contained
therein, including the right to unrestricted transfers. Using its trading strategy from March 1999
until Allmerica’s breaches (December 2001), Emerald earned approximately 40% returns (over
this 34-month period), turning its initial $5 million investment into over $12 million. In
December 2001, Allmerica breached the Annuity Contracts by restricting Emerald’s ability to

transfer its money among subaccounts. American Nat'l Bank and Trust Co. v. Allmerica Fin.

' Capitalized terms, unless otherwise defined, have the meaning set forth in Emerald’s

Memorandum Supporting Its Motion for Summary Judgment, filed May 2, 2003.

108776v6


Allmerica’s zero tolerance position. PX 279 contained the same elements of trustworthiness
identified by the Court in admitting other documents. There was no basis, given the Court’s
other rulings, for not admitting this document.

5. Testimony of Carron.

It was error to deny Emerald’s motions to exclude the testimony of Andrew Carron.
Carron’s testimony lacked the required reliability under Daubert, and was unduly prejudicial and
confusing to the jury. See Emerald’s Mot. to Exclude Portions of Carron’s Testimony, filed
Nov. 27, 2006, pp. 1-3, 7-9; Emerald’s Mot. to Exclude the Remaining Portions of Carron’s
Testimony, filed Dec. 11, 2006, pp. 1-3; 12/11/06 Tr. at 1099-1111. Although all of Carron’s
testimony should have been excluded, his testimony regarding what Emerald’s profits would
have been if Scudder had used a fair value pricing model developed by Carron himself, using a
trigger radically different than the trigger actually used by Scudder, was particularly misleading
and inappropriate.

10. Rubin’s testimony.

It was error for the Court to correct Mr. Rubin’s statement that Scudder could not reject
the trades of Emerald (as opposed to Allmerica) in front of the jury when Mr. Rubin’s statement
was correct. 12/8/06 Tr. at 833-34. It was also error for the Court to direct Mr. Rubin to answer
questions on direct examination only in “yes or no” format. /d.

ll. DH2’s lawsuit filed against the SEC.

It was error for the Court to instruct the jury that the Seventh Circuit held in DH2, Inc. v.
the SEC, 422 F.3d 591 (7" Cir. 2004) that “one of the reasons that the Seventh Circuit court of
appeals held that Emerald’s challenge to fair market pricing failed; that is, mutual funds do have
the discretion to impose fair market pricing in appropriate circumstances.” 12/12/06 Tr. at

1336-37. First, DH2, Inc. (“DH2”), not Emerald, was the plaintiff in the action before the

14
108776v6


B. There Was No Evidence To Support Allmerica’s Position That The Board Of
Trustees Would Have Determined Not To Accept Allmerica’s Trades.

Allmerica’s attempts to prove what Scudder might have done consisted of speculation
and inadmissible lay opinion. Contrary to the well-established rule that witnesses typically may
only testify as to facts, the Court repeatedly and erroneously allowed witnesses to talk about
what they (and worse) others might have done absent Allmerica’s breaches. See, es
12/8/06 Tr. at 981-988. For example, Sandow and Becton testified about possible actions of the
“Board” in response to trading by Emerald. 12/8/06 Tr. at 981-88; 12/12/06 Tr. at 1417-23.
Neither should have been allowed to testify about what the “Board” might have done, an entity
consisting of numerous persons whose composition changed over time. 12/12/06 Tr. at 1417-23.
Indeed, Becton, the only Board member presented by Allmerica (but over objection, see p. 10,
below), confirmed that what the Board might have done had Emerald’s trades been submitted by
Allmerica was pure “speculation.” 12/12/06 Tr. at 1419-23. According to Becton, the “Board”
never even considered the issue. /d, In contrast, there was evidence about what the Board
actually did, even in light of “market timing” that was much more significant than that possible
in the damages period. The evidence showed Scudder never terminated a relationship with a
subaccount provider, never declined a trade, and never went “dark.” 12/8/06 Tr. at 1005-07.

In sum, what Scudder “might have” done absent Allmerica’s breaches should not have
been part of this trial and not an issue for which Emerald bore the burden of proof. See p. 3, n.2,
above. This trial should not have been about proving that, if certain events occurred, then other
events might also have happened, leading to a changing (over time) entity reaching conclusions
that it never did. No admissible evidence was adduced to “prove” such speculation. Given the
lack of admissible evidence on what the Board might have done other than accept the trades,

judgment should have been entered in Emerald’s favor on the Scudder issue. Pursuit of the issue

108776v6


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, as Trustee f/b/o
EMERALD INVESTMENTS LIMITED
PARTNERSHIP, and EMERALD
INVESTMENTS LIMITED PARTNERSHIP,
an Illinois Partnership,

Civil Action No. 02 C 5251

Judge Grady

Vv.

ALLMERICA FINANCIAL LIFE

)

)

)

)

)

)

)
Plaintiffs, ) Magistrate Judge Mason

)

)

)

)

INSURANCE AND ANNUITY COMPANY, )

)

)

Defendant.

PLAINTIFFS’ RENEWED RULE 50 MOTION FOR JUDGMENT AS
A MATTER OF LAW AND RELATED RULE 59 MOTION FOR A NEW TRIAL

Plaintiffs (collectively, “Emerald”) move for judgment as a matter of law under
Federal Rule of Civil Procedure 50(b) and for a new trial on the amount of damages owed to
Emerald as a result of Allmerica’s material breaches of its Annuity Contracts under Federal Rule
of Civil Procedure 59 for the reasons set forth in the memorandum attached hereto as Exhibit A,
which is incorporated herein by reference.
ls Emerald moves for judgment as a matter of law on the Scudder issue and
on the mitigation issue for the reasons stated in its supporting
memorandum.
2. Emerald moves for a new trial on the issue of the amount of damages for
the reasons stated in its supporting memorandum.
3 Emerald seeks leave under Local Rule 7.1 to file its supporting

memorandum (attached as Exhibit A), which exceeds 15 pages in length.

109585v1


Third, Dr. Buser should have been allowed to testify about Emerald’s historical rates of
return in both the Allmerica account and Emerald’s other accounts. Past profits provide an
appropriate basis on which the fact finder can base a damages award. Girsberger v. Kresz,

63 N.E.2d 781, 791 (Ill. App. Ct. 1993); Klucznik v. Nikitopaulos, 503 N.E.2d 1147, 1151

(Ill. App. Ct. 1987). Dr. Buser also intended to refute Allmerica’s position that these returns
could not have been expected to continue had Emerald been allowed to trade. Emerald’s ability
to effectively present this evidence was denied by the Court.

Not only did the Court prevent Emerald from presenting its damages positions, it also
exacerbated this error by claiming in the presence of the jury that whether Scudder would have
accepted trades was the key issue in the case. See, e.g., 12/4/06 Tr. at 28, 119. This issue was
reaffirmed as “key” in the Court’s verdict forms and instructions, which required the jury to
speculate as to what a third party might have done in a hypothetical world where Allmerica had
not breached the contracts. Compounding this error was Instruction No. 14, which misstated the
circumstances under which an Allmerica trade would be refused, implying that “Scudder” had
the right to reject trades without a determination by the Board of Directors of the applicable Fund
that rejection was necessary in light of the Board’s fiduciary duties. There is no dispute that such
an event never occurred, and there was insufficient evidence to determine that the “Board,” an
ever-changing group of individuals, would have reached such conclusions.

Emerald was also entitled to present other alternative damage claims to the jury. Which
hypothetical (benchmarks, past profits, including Lincoln’s profits, or Mr. Rubin’s analysis)
might have more reasonably estimated Emerald’s damages was for the jury to decide. Belleville
Toyota., 770 N.E.2d at 199-201; American Nat. Bank, 125 F.3d at 436; Arch, 681 N.E.2d at 1051

(“The determination of which measure of damages to apply is usually a question for the jury”);

108776v6


generally accepted, if not well-established”); West Haven Sound Dev. Corp. v. West Haven,
514 A.2d 734, 741 (Conn. 1986) (finding damages estimate based on discounting of future
income streams reasonable estimate of damages). Whether damages should have been measured
as of the time of breach or at some other time was for the jury to determine. Belleville Toyota,
770 N.E.2d at 199-201 (appropriate for jury to decide which of several damages models to
select); American Nat. Bank & Trust Co. of Chicago v. Reg'l. Transp. Auth., 125 F.3d 420, 436
(7th Cir. 1997) (jury has wide discretion in determining appropriate calculation of damages);
Arch of Illinois v. S.K. George Painting, 681 N.E.2d at 1051 (Ill. App. 1997); Hill of Palos
Condo. Ass'n v. I-Del, Inc., 626 N.E.2d 1311, 1327 (Ill. App. Ct. 1991). There was no valid
basis to strike this testimony.

Second, Dr. Buser should have been allowed to testify regarding the rate of return found
in academic studies. See Emerald’s Resp. to Allmerica’s Mot. to Exclude Dr. Buser, filed
Nov. 22, 2006; 11/29/06 Hr. Tr. at 4-6. These studies provided benchmarks which the jury could
have used to arrive at a damages award. Lost profits can be based on comparable benchmarks,
and no expert stated that the strategies used in the studies were not “comparable” to that
employed by Emerald. Target Mkt. Pub. Inc. v. Advo, Inc., No. 94 C 2535, 1995 WL 88994, at
*3-5 (N.D. Ill. Feb. 24, 1995) (rejecting position that damages had to be calculated based on
actual data rather than an expert’s projections); Mid-America, 100 F.3d at 1367 (relying in part
on expert’s assertion that profit calculations based on projections by plaintiff were “reasonable”
based on his industry experience); Higgins v. Kinnebrew Motors, Inc., 547 F.2d 1223, 1226
(Sth Cir. 1977) (expert testimony regarding future damages admissible although relied on figures
from bureau of labor statistics rather than using actual expenses in damages calculations), There

was no valid basis to exclude Dr. Buser’s testimony on these points. 11/29/06 Hr. Tr. at 4-6.

108776v6


Court’s insertion of the issue of what Scudder might have done absent Allmerica’s breaches
allowed Allmerica, contrary to law, to present “evidence” as to what “might have” happened in
the absence of its breaches. But Allmerica, as the breaching party, bore the risk of this
uncertainty. Bigelow v. RKA Radio Pictures, Inc., 327 U.S. 251, 265 (1946) (stating that the
“most elementary conceptions of justice and public policy require that a wrongdoer shall bear the
risk of the uncertainty which his own wrong has created”); BE&K Const. Co. v. Will & Grundy
Counties Bldg. Trades Council, 156 F.3d 756, 770 (7th Cir. 1998) (“where, as here, the
uncertainty as to the damages stems from the defendants’ ill conduct, the defendants should not
benefit from the uncertainty they created”); Mid-American Tablewares, Inc. v. Mogi Trading
Co., 100 F.3d 1353, 1367 (7th Cir. 1996) (it is “particularly in the area of quantifying the amount
of lost profits that courts impose the risk of uncertainty on the breaching party whose breach
gave rise to the uncertainty”); Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc.,

770 N.E.2d 177, 199 (Ill. 2002) (defendants “should not be permitted to escape liability because
the amount of the damage they caused is uncertain”).’ Having established the fact of damages,
an issue on which the evidence was overwhelming, Emerald needed to only provide evidence
that tended to show a “basis for the computation of damages with a fair degree of probability.”
Jabat, Inc. v. Smith, 201 F.3d 852, 857 (7th Cir. 2000). Linking Emerald’s damages to “proof”

of the possible actions of a third party was contrary to established law and was error.

$ Placing the burden of proof on Emerald to demonstrate what Scudder might have done absent
Allmerica’s breaches also constituted error. Compare 9/11/06 Mem. Op. at 3 with Munoz v. Expedited
Freight Systems, Inc., 775 F. Supp. 1181 (N.D. Ill. 1991); Mueller v, Ameritech Info. Sys., Inc.,

No. 91 C 3429, 1992 WL 48014 (N.D. Ill. Mar. 3, 1992); Auburndale State Bank v. Dairy Farm Leasing
Corporation, 890 F.2d 888, 893 (7th Cir. 1989); Noyes v. Gold, 34 N.E.2d 1, 3 (IIL App. Ct. 1941). At
best, what Scudder might have done was a (never pled) affirmative defense for which Allmerica, not
Emerald, bore the burden of proof. /d.; Illinois-American Water Co. v. City of Peoria, 774 N.E.2d 383,
390-391 (Ill. App. Ct. 2003) (holding that impossibility and frustration are affirmative defenses); see also
Springfield Oil Drilling Corp v. Weiss, No. 02 C 249, 2003 WL 22025006, at *7 (N.D. Ill. Aug. 28, 2003)
(same).

108776v6


14, Denial of prejudgment interest relating to the surrender fee.

It was error for the court to deny Emerald prejudgment interest from Allmerica’s
improper withdrawal of the surrender fee. Emerald is entitled to prejudgment interest from
May 20, 2003, the date Allmerica improperly withheld the surrender fee of $150,000, until
December 12, 2003, the date of this Court’s ruling that Allmerica breached the Annuity
Contracts. Residential Mktg. Group, Inc. v. Granite Inv. Group, 933 F.2d 546 (7th Cir. 1991)

(“Prejudgment interest is necessary to compensate the victim of a breach of contract . . . if the

amount due under a written contract is determinable, . . ., the plaintiff is entitled to such
interest”).
CONCLUSION

For all these reasons, Emerald is entitled to the requested relief.

Dated: January 4, 2007 Respectfully submitted,

AMERICAN NATIONAL BANK, as Trustee f/b/o
EMERALD INVESTMENTS LIMITED
PARTNERSHIP, and EMERALD INVESTMENTS
LIMITED PARTNERSHIP

By:_/s/_ George R. Dougherty
One of Their Attorneys

17
108776v6


EXHIBIT A


within the Seventh Circuit. 12/12/06 Tr. at 1515-16, 1533-35; Illinois Pattern Jury Instructions
§ 700.17 (2006 Ed.); Jabat, 201 F.3d at 857.
E. Numerous Other Errors Marred The Trial.
1, Becton should not have been allowed to testify.

Becton was known to Allmerica before it submitted its pretrial disclosures under Rule 26.
10/4/06 Hr. Tr. at 5; Allmerica’s Resp. to Emerald’s Mot. to Quash Deposition and Vacate
Ex Parte Order at 2; 12/11/06 Tr. at 1155-56. Despite knowledge of Becton, Allmerica failed to
list him on its witness list as a potential trial witness and never supplemented its persons with
knowledge interrogatory answer to reflect his name or the information he purportedly possessed.
Even after Allmerica admittedly made a decision to seek his testimony on November 22, 2006, it
waited until the evening of November 30 to disclose this fact to Emerald’s counsel, literally one
business day before the trial was to begin. 12/11/06 Tr. at 1154-57.

Under Rule 37, Allmerica was not entitled to use Becton’s testimony unless its failure to
disclose Becton in its interrogatory answer and as a witness in accordance with Rule 26 was
“harmless.” Disclosure of Becton as a witness on what the Court told the jury was the key issue
in the case one business day before the trial was to begin was not “harmless,” and the Court’s
determination to that effect was error.’ Emerald did not have time to prepare for his deposition
or to order its proofs in light of Becton’s testimony. Allmerica should not have been permitted to

use his testimony, and the Court’s decision to allow it to do so was error.

8 Rule 32 requires that a party be given reasonable notice of a deposition in order for the deposition

to be admissible at trial. Emerald was not given reasonable notice. Allmerica has never explained its
failure to identify Becton between November 22 and November 30. Its goal in failing to do so is
obvious — to have prevented Emerald from adequately preparing for the deposition. Allowing Allmerica
to use the deposition awarded this improper gamesmanship.

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4. Emerald was entitled to show that substitutions of Portfolios was an
appropriate alternative.

Emerald was entitled to present testimony on 1) the issue of whether Allmerica could
have substituted other portfolios for the international portfolio, and 2) whether Allmerica’s
decision to close the Scudder portfolios as of July 2004 was a pretext. Emerald should have been
allowed to show that if Scudder had not accepted its trades, then Allmerica had the option of
selecting another partner. Emerald also was entitled to seek damages for the entire period under
the contracts and to show the jury that absent the litigation, Allmerica would not have eliminated
subaccounts in July 2004. See 2/8/05 Order; 2/1/06 Mem. Op..

S$; Evidence regarding Scudder’s activities concerning retail mutual
funds should have been excluded.

In ruling on Emerald’s Motion in Limine Relating to Scudder’s Efforts to Restrict
Frequent Trading in Retail Mutual Funds, the Court stated that evidence concerning retail mutual
funds would be admissible only if Allmerica showed that Scudder thought there was “no
distinction” between what it did in the retail area as opposed to what it might have done in the
variable annuity area. 11/29/06 Tr. at 9-10. In fact, there was no evidence to suggest that any of
the entities, Scudder, Allmerica or Emerald, viewed the products as the same. Every witness
testified that there were significant differences between retail mutual funds and variable
annuities, including that variable annuities were controlled by contract, a competing value that
Scudder repeatedly recognized in every document presented by Allmerica addressing this issue.
See, e.g., 12/8/06 Tr. at 873-877, 991-996; DX 435. Evidence concerning what Scudder did (and
did not do) with respect to retail mutual funds was irrelevant, confusing and unfairly prejudicial

under Fed. R. Evid. 402 and 403. It should not have been admitted.‘

‘ This evidence includes Scudder’s activities regarding 401K funds, which were improperly

admitted over objection. 12/12/06 Tr. at 1373-74. Again, these situations involved different contracts

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CERTIFICATE OF SERVICE
1, George R. Dougherty, an attorney, hereby certify that on January 4, 2007,

I caused a true and complete copy of the foregoing PLAINTIFFS’ RENEWED RULE 50
MOTION FOR JUDGMENT AS A MATTER OF LAW AND RELATED RULE 59
MOTION FOR A NEW TRIAL to be served by Electronic Mail Transmission via ECF as to
Filing Users upon the following counsel of record. Any counsel not registered with the ECF
System will be served a copy via facsimile transmission.

Alan S. Gilbert

Gerald E. Fradin

Wendy N. Enerson

Diana M. Lin

Sonnenschein Nath & Rosenthal

8000 Sears Tower

233 South Wacker Drive

Chicago, Illinois 60606
Facsimile: (312) 876-7934

/s/_ George R. Dougherty

George R. Dougherty

109585v1


Emerald’s memorandum relates to a request for a new trial and judgment
as a matter of law after a seven day jury trial which raised various
complex legal and factual issues. Emerald has made a good faith effort to
properly address the arguments within fifteen pages, but has determined
that it requires more than fifteen pages.

WHEREFORE, Emerald seeks that the Court enter judgment in its favor on the

Scudder and mitigation issues and a new trial on the amount of damages.

Dated: January 4, 2007 Respectfully submitted,

AMERICAN NATIONAL BANK, as Trustee f/b/o
EMERALD INVESTMENTS LIMITED
PARTNERSHIP, and EMERALD INVESTMENTS
LIMITED PARTNERSHIP

By:_/s/_ George R. Dougherty
One of Their Attorneys

Charles S. Bergen (#6186596)

George R. Dougherty (#6196945)

Peter S. Roeser (#6257273)

Claudia M. Laurens (#6270144)

Daniel M. Hinkle (#6283092)

GRIPPO & ELDEN LLC

111 South Wacker Drive

Chicago, Illinois 60606

(312) 704-7700

Email: gdougherty@grippoelden.com

109585v1


J-Del, 626 N.E.2d at 1327 (“only the jury could determine which measure of damages to apply
because the alternative measure could only be applied after a factual finding”); ABC Trans Nat.
Transp., Inc. v. Aeronautics Forwarders, Inc., 413 N.E.2d 1299, 1314 (Ill. App. 1980)
(“Economic data can be interpreted in different ways for different purposes. As useful as a
particular accounting technique may be in predicting a company's financial future, it cannot be
regarded as conclusive proof of legal damages; the [fact finder] must be free to draw their own
inferences from the evidence presented”). There was no proper basis to exclude such evidence,
and the Court’s decision to do so warrants a new trial.

D. Emerald Is Entitled to a New Trial Because the Jury Instructions and
Verdict Forms Were Improper.

1. Emerald’s proposed Instruction Nos. 26, 30 and 31 should have been
given.

Emerald’s Tendered Instruction No. 26 should have been given. Numerous cases hold
that reasonable doubts regarding the amount of damages caused by a breach should be resolved
against the breaching party, Allmerica. See cases cited at pp. 3-4, above. Allmerica’s decision
to breach the Annuity Contracts by failing to accept and submit Emerald’s trades to Scudder
resulted in the parties being unable to know what, if any, reaction Scudder would have had to
Emerald’s trades. Therefore, Allmerica bore the risk of any uncertainty as to what Scudder
might have done had Allmerica submitted the trades. See id.

Tendered Instruction Nos. 30 and 31 should have also been given. Both stated that the
jury could consider, if it chose to do so, Emerald’s past profits as benchmarks to estimate
damages caused by Allmerica’s breaches, a proper statement of the law and especially important
in light of the Court’s Instruction No. 14. Emerald was entitled to present its damages theories to

the jury, not only those dictated by the Court.

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2. Becton’s testimony was insufficient to establish what the “Board”
might have done.

Becton was the only Board member called by Allmerica. Nevertheless, the jury was
allowed to speculate as to what the “Board” thought and might have ultimately done had
Allmerica submitted Emerald’s trades. There was no admissible evidence that the “Board”
thought that, had Emerald’s trades been included in those submitted by Allmerica, termination of
Scudder’s relationship with Allmerica would have been necessary or that the Board would have
determined that it was necessary to reject Allmerica’s omnibus trades. Indeed, Scudder
recognized the importance of Allmerica’s contracts with its policyholders and that, based on the
promises in those contracts which were “guaranteed,” 12/8/06 Tr. at 994 (Sandow), its options
regarding frequent trading were limited. Any “determination” on this point by the jury was
based on pure speculation. Indeed, the only admissible evidence presented showed that the
Board had never considered the issue and had never undertaken such a drastic measure, despite
market timing that was literally hundreds of millions of dollars more than that which may have
existed during the damage period selected by the Court. 12/12/06 Tr. at 1413-14, 1417-23,
1430-32, 1440.

3. Evidence relating to Emerald’s dealings with third parties was
improperly admitted by the Court.

Evidence of Emerald’s relationships with third parties was not relevant. It should have
been excluded as irrelevant and confusing to the jury. What Scudder or other parties did in the
context of other contracts was not relevant to the issue before the Court. See cases cited at

pp. 3-4, above.

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