Court Opinion

ID: 25422
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:35:23+00
Date Added: 2024-06-11T09:38:00.309036
License: Public Domain

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this opinion should not be published and is not precedent except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

                                 28