Opinion ID: 2750655
Heading Depth: 3
Heading Rank: 1

Heading: Admission of the Drafting History and Annex A

Text: We review the district court's evidentiary rulings for abuse of discretion. Enos v. Union Stone, Inc., 732 F.3d 45, 49 (1st Cir. 2013). If we find error, we reverse unless it is highly probable that the error did not affect the outcome of the case. McDonough v. City of Quincy, 452 F.3d 8, 19–20 (1st Cir. 2006). The district court properly applied state law in admitting the Engagement Letter and its drafting history. In Nycal Corp. v. KPMG Peat Marwick LLP, 688 N.E.2d 1368 (Mass. 1998), the SJC set forth the requirements for a plaintiff asserting a claim of negligent misrepresentation against a defendant who supplies information for the guidance of others in business transactions. Under Nycal, if the plaintiff and defendant are not in contractual privity (as is the case here, because Goldman was engaged by Dragon, not by plaintiffs), in order to succeed on a negligent misrepresentation claim, the plaintiff must show that the defendant had actual knowledge . . . of the limited -- though unnamed -- group of potential [parties] that will rely on the [defendant's advice], as well as actual knowledge of the particular financial transaction that such information is designed to influence. 688 N.E.2d at 1371–72 (quoting First Nat'l Bank of Commerce v. Monco -37- Agency Inc., 911 F.2d 1053, 1062 (5th Cir. 1990)); see also Restatement (Second) of Torts § 552 (1977). Provisions of the draft Engagement Letter indicating that Goldman was to be employed by individual stockholders were explicitly removed from the final agreement. That is clearly relevant to Goldman's knowledge as to whether individual shareholders would rely on Goldman's financial advice, when the plaintiffs expressly chose not to sign the agreement in order to avoid the indemnification obligations which the signatory, Dragon, undertook. Accordingly, the Engagement Letter and its drafting history were relevant to both sets of plaintiffs' negligent misrepresentation claim, see Fed. R. Evid. 401, and the plaintiffs have not shown that their relevance was substantially outweighed by a risk of unfair prejudice, see Fed. R. Evid. 403. The evidence was admissible.15 Annex A was relevant to the case for the same reason as was the drafting history. The final version of Annex A, like the rest of the agreement, excluded any relevant reference to Stockholders, which further strengthens the inference that Goldman did not intend for individual stockholders to rely on its 15 The drafting history of the Engagement Letter was not barred by the parol evidence rule. That rule prohibits the introduction of evidence of the circumstances leading to an agreement's execution for the purpose of contradicting or changing its terms. See ITT Corp. v. LTX Corp., 926 F.2d 1258, 1264 (1st Cir. 1991). -38- financial advice. Thus, even though Annex A concerned Goldman's liability for derivative, rather than direct, claims, the district court did not abuse its discretion in admitting it. This is all the more so given the district court's explicit instruction to the jury that the exculpatory clause in Annex A is inapplicable . . . because the plaintiffs' claims are . . . direct claims for themselves as individual shareholders. We assume that the jury followed this instruction. United States v. George, 761 F.3d 42, 57 (1st Cir. 2014).16 Even if admission of Annex A was arguably an abuse of discretion, any error was harmless, given the court's cautionary instruction and the substantial amount of other evidence tending to suggest that Goldman did not intend individual shareholders to rely on its advice. See SEC v. Happ, 392 F.3d 12, 28–29 (1st Cir. 2004) (admission of cumulative evidence was harmless error). 16 The Baker plaintiffs argue that Goldman's counsel made improper arguments based on the Engagement Letter and its drafting history in closing argument. We disagree. Counsel's comments are fairly read as simply outlining the theory of relevance articulated above -- the fact that the word Stockholders was removed from the agreement makes it less likely that Goldman knew individual stockholders would rely on its advice. In any event, plaintiffs did not lodge a contemporaneous objection to Goldman's closing, and the allowance of the statements certainly did not rise to the level of plain error. See Portuges-Santana v. Rekomdiv Int'l Inc., 725 F.3d 17, 26 (1st Cir. 2013) (where party fails to object to statements made in closing, claim of improper argument reviewed for plain error). -39-