Opinion ID: 672055
Heading Depth: 2
Heading Rank: 2

Heading: Excluding the 1992 Form 10-K Annual Report

Text: 52 The appellants also have argued that the district judge abused his discretion by granting Microdyne's motion in limine to exclude from evidence Microdyne's Form 10-K annual report for fiscal year 1992. The Form 10-K, filed with the SEC on December 29, 1992, disclosed that [t]he Company provides terms of net 30 days for most products it sells. On certain products, those terms may be extended to 90 days at the discretion of management. Microdyne's agreements with distributors allow products to be returned for credit under certain conditions. The district judge, following Judge Friendly's opinion in SEC v. Geon Industries, Inc., 531 F.2d 39, 52 (2d Cir.1976) (applying Federal Rule of Evidence 407 in the securities context), held that the annual report contained evidence of subsequent remedial measures and therefore was inadmissible. We review that evidentiary ruling for an abuse of discretion. 53 Rule 407 of the Federal Rules of Evidence provides: 54 When, after an event, measures are taken which, if taken previously, would have made the event less likely to occur, evidence of the subsequent measures is not admissible to prove negligence or culpable conduct in connection with the event. This rule does not require the exclusion of evidence of subsequent measures when offered for another purpose, such as proving ownership, control, or feasibility of precautionary measures, if controverted, or impeachment. 55 Fed.R.Evid. 407. 56 Microdyne has argued that the plaintiffs wanted to use the above-quoted disclosure in the 1992 Form 10-K as an admission that Microdyne should have made similar disclosures in the quarterly Form 10-Qs that it filed with the SEC on May 15 and August 12. The appellants have argued that they wanted to offer the annual report as evidence of an admission of a hotly contested fact: that Microdyne granted unconditional rights of return and extraordinary credit terms to its distributors. 57 On this issue, we agree with Microdyne. The potential prejudice from introducing the Form 10-K is clear: jurors likely would view its disclosure of rights of return as proof of culpable conduct, akin to a landlord's fixing a stairway after being sued by an injured tenant. The probative value of the Form 10-K for other purposes is dubious. There was plenty of other evidence at trial to show that some of the distributors could, and did, return unsold NAS units to Microdyne. Furthermore, nothing in the Form 10-K could establish the terms of the particular NAS and NACS transactions. Thus, the district judge did not abuse his discretion in excluding the 10-K. 58 Accordingly, we reverse the judgment of the district court and remand the case for a new trial. 59 REVERSED AND REMANDED.