Court Opinion

ID: 2997872
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:39:26.353067+00
Date Added: 2024-06-11T15:03:06.944689
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 04-1171
CERABIO LLC and PHILLIPS
PLASTICS CORPORATION,
                                          Plaintiffs-Appellees,
                              v.

WRIGHT MEDICAL
TECHNOLOGY, INC.,
                                         Defendant-Appellant.
                        ____________
          Appeal from the United States District Court
             for the Western District of Wisconsin.
            No. 03 C 92—John C. Shabaz, Judge.
                        ____________
   ARGUED SEPTEMBER 14, 2004—DECIDED JUNE 13, 2005
                   ____________

 Before CUDAHY, ROVNER, and WILLIAMS, Circuit Judges.
  ROVNER, Circuit Judge.       In this contract dispute,
CERAbio, LLC and its sole member, Phillips Plastics
Corporation (collectively “CERAbio”), claims that it deliv-
ered all of the assets of the corporation, including its
technological know-how, to Wright Medical Technology, Inc.
(Wright), but that Wright failed to pay the remaining half
of the agreed-upon sales price. Wright countered that not
only was the technological knowledge provided by CERAbio
2                                                No. 04-1171

worthless and that it therefore had not performed its end of
the deal, but that CERAbio had also committed fraud and
had been negligent both in the formation and performance
of the contract. Upon CERAbio’s motion, the district court
granted summary judgment on Wright’s tort counter claims.
At trial, the jury ruled in favor of CERAbio on the contract
claims. On appeal, Wright challenges the district court’s
ruling on summary judgment as well as an evidentiary rul-
ing at trial. We affirm the summary judgment ruling, but
reverse and remand to the district court to correct the effect
of the erroneous evidentiary ruling, which we agree was in
error.

                             I.
  Wright designs, manufactures, and sells medical devices
and products, including bone replacement products known
as biologics, frequently used during implantation surgery to
replace lost bone and provide a framework for new bone
growth. In the late 1990’s, CERAbio developed a bone re-
placement product made from tricalcium phosphate (“TCP”).
The Food and Drug Administration approved the new
product, Apatight, for use in humans as a bone void filler.
CERAbio obtained patents for the Apatight production pro-
cess and material.
  In early 2001, Wright representatives learned about
Apatight at a trade conference. CERAbio was strictly a
research and development company which did not manufac-
ture or sell Apatight or other products commercially. Wright
markets and sells biologics worldwide and was looking to
expand its product offerings in the bone replacement mar-
ket, so a match seemed ideal. CERAbio negotiated with
Wright to provide Apatight to Wright which Wright would
then market and sell. Eventually, the negotiations evolved
and Wright decided to purchase substantially all of
CERAbio’s assets, including all patents and know-how.
No. 04-1171                                                3

   Prior to entering into the Agreement, CERAbio informed
Wright that it had an established and repeatable process
for producing Apatight and that all of the raw materials
necessary were commercially available. Under the terms of
the August 5, 2002 Agreement between the parties
(“Agreement”), Wright agreed to pay $3 million for the
CERAbio assets with $1.5 million payable upon closing and
a second installment of $1.5 million due no later than three
days after Wright verified that it was able to produce
Apatight (“Verification”). The contract defined the parame-
ters of Verification and required that CERAbio transfer
assets to Wright, that it train Wright’s employees, and that
Wright produce three test lots of Apatight using the specific
work instructions supplied by CERAbio. Wright had sixty
days to attempt to produce the three test lots of Apatight in
its Memphis facility using commercially reasonable efforts.
If it failed to do so, under the Agreement, CERAbio would
have the opportunity to access Wright’s manufacturing
equipment and cooperate with Wright to produce the three
Apatight test lots—again, using commercially reasonable
efforts.
  After the closing, Wright attempted to buy TCP powder,
one of the key raw materials needed to manufacture
Apatight, but found that it was no longer available. Plasma
Biotal, the manufacturer of the necessary TCP powder, had
started making a new TCP powder with a different particle
size—one that would not work properly utilizing the
Apatight manufacturing instructions. Plasma Biotal still
had a limited supply of the original powder, but it had
become contaminated. Wright and CERAbio dispute when
CERAbio became aware that the powder was unavailable
and the role that the unavailability of the powder played in
the ability to seal the deal. From this point forward, the
statements of facts in the two briefs begin to read like two
unrelated novels. When the facts are digested, however, it
appears that the parties do not wholly dispute the course of
events, but instead dispute where the blame lies.
4                                                    No. 04-1171

   According to the appellant Wright, CERAbio knew prior
to closing on the Agreement that the TCP powder was una-
vailable, but nevertheless represented to Wright that all of
the materials necessary to produce Apatight were generally
commercially available. To support this claim, Wright points
to the deposition of CERAbio’s senior product development
engineer, Dr. Ying Ko, who testified that CERAbio knew
prior to closing that the TCP powder was no longer avail-
able. CERAbio does not necessarily disagree that it knew of
the availability problem, it focuses instead on the fact that
it was possible to work around the problem and to produce
Apatight without the original TCP powder. And so while it
may have known that one form of the powder was unavail-
able, CERAbio says, it thought that other powders were
available and acceptable alternatives. It thus counters
Dr. Ko’s testimony by pointing to evidence that Plasma
Biotal had assured Dr. Ko that it could produce an “original
style” powder. Supp. App. at 4.1 It further implies also that
even if CERAbio did know that the powder was unavailable,
the Agreement between the two parties put the onus on
Wright to engage in due diligence in order to verify the
availability of all necessary materials. Finally, it claims
that Wright itself was aware of the powder unavailability
problem prior to the closing. CERAbio’s spin, in a nutshell,
is that the unavailability of the TCP powder was not
CERAbio’s fault and that with some revisions to the work
instructions Apatight could be produced using the new
powder, but that Wright never gave CERAbio the chance. It
also argues that Wright eventually found a manufacturer
who could make a “look-alike” powder but decided instead
to shut CERAbio out of the process, produce the virtually
identical ceramic bone replacement, Cellplex, on its own,

1
   Supp. App. refers to the Supplemental Appendix of Plaintiff-
Appellees CERAbio. App. cites refer to the Separate Appendix of
Defendant-Counter-Plaintiff-Appellant, Wright, and Short App.
cites refer to Plaintiff-Appellees attached required short appendix.
No. 04-1171                                                  5

and claim it as its own new creation to avoid paying the
remainder of the $1.5 million fee and royalties.2
  Wright, of course, has a different story to tell. Shortly af-
ter closing, CERAbio informed Wright that the instructions
had to be changed due to the unavailability of the TCP pow-
der—a problem that CERAbio claimed not to have known
about prior to closing on the Agreement. Wright claims
that, based on these representations, it consented to oral
modifications of the Agreement—permitting CERAbio to
make changes to the work instructions and to attempt
twelve “pre-verification” production runs over the course of
several months. Wright points to evidence that CERAbio
did, in fact, know about the availability problem prior to
closing and argues that had it known that CERAbio had
hidden its knowledge of the unavailability, it never would
have agreed to the modification.
  In the meantime, in light of the powder unavailability,
efforts to resolve the problem proceeded on two fronts.
Plasma Biotal tried to replicate the old powder it had been
producing originally, and CERAbio employees were working
at Wright from late August 2002, to early November 2002,
to see if they could alter the work instructions to come up
with a process for manufacturing Apatight using the new
powder. These attempts were called “pre-verification” ef-
forts since the formal Verification process described in the
Agreement could not begin without the old powder or an ap-
propriate substitute. Both parties agree that no successful
test lots were produced during this time. CERAbio claims
that Verification failed because Wright threw CERAbio’s
scientists out just as they were on the cusp of success. It did
so, says CERAbio, because Wright had independently
learned that Plasma Biotal had developed a new “look-a-

2
  Under the Agreement Wright was to pay 7.5% royalties on
products primarily derived from CERAbio technology and 3% on
products incorporating the transferred technology in part.
6                                               No. 04-1171

like” powder that would work in the process and it wanted
to proceed to develop the TCP bone replacement product on
its own to avoid paying roylaties. CERAbio claims that had
it known about the existence of the new powder, it could
have completed the Verification process in two or three
weeks.
  Wright, on the other hand, claims that after two or three
months of unsuccessful tries (the exact amount of time is
the subject of some debate, but not relevant for these pur-
poses), it became clear to Wright that the effort was fruit-
less. On November 8, 2002, Wright notified CERAbio that
it considered CERAbio to be in breach of the Agreement,
and proceeded with its own efforts to produce a bone re-
placement product.
  Both parties agree that Wright eventually succeeded in
creating a marketable bone replacement product called
Cellplex. Wright, of course, argues that it created Cellplex
using a completely different process than the one invented
by CERAbio. CERAbio claims that the process for manu-
facturing Cellplex differs only slightly from the process
CERAbio developed to manufacture Apatight and then sold
to Wright, and that the two end products are virtually
identical.
  CERAbio sued Wright for the second $1.5 million install-
ment it believes Wright owes under the Agreement. Wright
countered with its own contract claim alleging that
CERAbio failed to provide its end of the bargain under the
terms of the Agreement and therefore was not entitled to
the final payment. In addition, Wright claimed that
CERAbio’s misrepresentations caused Wright to incur
unplanned expenses in excess of $500,000, direct damages
of over $880,000, and lost profits as of the time of trial of
over $6.7 million.
  Wright also counter-sued claiming fraudulent inducement
of the contract, fraud in the performance of the contract,
No. 04-1171                                                  7

pre-contract negligent representation, and negligent mis-
representation in the performance of the contract. The dis-
trict court judge granted summary judgment for CERAbio
on all of Wright’s tort claims. (Wright’s contractual claims
were not at issue at summary judgment.) His order limited
Wright’s recoverable damages to direct damages and
excluded the possibility of incidental, special, consequential,
and punitive damages. Based on this ruling, in preparation
for trial, the district court ruled that evidence that pre-dat-
ed the closing on the Agreement was not relevant and hence
inadmissible. He theorized that any mention of pre-contrac-
tual occurrences would constitute an attempt to evade his
ruling on summary judgment. The district court referred to
his ruling as a “bright blue line” and the parties continue
with this nomenclature. Wright claims that this ruling
crippled its ability to prosecute the remaining claims and to
offer affirmative defenses to CERAbio’ claims.
  The parties proceeded to trial and at the close of
CERAbio’s case, the court denied Wright’s motion for judg-
ment as a matter of law. Following a jury verdict in favor of
CERAbio, the district court entered an amended order of
judgment in favor of CERAbio in the amount of $1,407,550
and entered a declaratory judgment of its entitlement to
royalties. (Short App. at 101) (R. at 110).
  On appeal, Wright challenges the district court’s bright
blue line evidentiary ruling as well as the ruling on the
summary judgment claims for fraudulent inducement, fraud
in the performance, pre-contract negligent representation,
and negligent misrepresentation in the performance of the
contract. We will address the latter first, for if we were to
reverse the district court’s ruling on the summary judgment
claims, there would no longer be a basis for the “bright blue
line” ruling.
8                                                No. 04-1171

                             II.
                A. Summary Judgment
  We review Wright’s claims that the district court errone-
ously granted summary judgment with a fresh set of eyes—
de novo—to ensure that, after viewing the facts in the light
most favorable to Wright, there remains no genuine issue
of material fact and that CERAbio is entitled to judgment
as a matter of law on Wright’s tort claims. Fed. R. Civ. P.
56(c); Ezell v. Potter, 400 F.3d 1041, 1046 (7th Cir. 2005).
  CERAbio moved the district court for summary judgment
on all of the defendant’s counter claims other than its claim
for breach of contract, namely Wright’s counterclaims for
pre-contract fraudulent inducement and negligent misrep-
resentation, and post-contract fraudulent and negligent
misrepresentation in the performance of the contract.
  The district court’s first task was to determine which
state’s substantive law applied to the defendant’s counter
claims. The district court aptly determined that the
Delaware choice of law provision in the Agreement applied
only to those counterclaims sounding in contract law and
not Wright’s tort claims. (Short App. at 9-10) (R. at 37, p.9-
10). A choice of law provision will not be construed to
govern tort as well as contract disputes unless it is clear
that this is what the parties intended, Kuehn v. Children’s
Hosp., Los Angeles, 119 F.3d 1296, 1302 (7th Cir. 1997), and
there was no clear indication in the Agreement that the
parties intended for the choice of law clause to govern tort
claims. The district court concluded that under Klaxon Co.
v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) the gov-
erning choice-of-law principles were those of Wisconsin, the
forum state. Consequently, under Wisconsin’s choice of law
algorithm, if the laws of the competing states are the same,
a court must apply Wisconsin law. Deminsky v. Arlington
Plastics Mach., 657 N.W.2d 411, 420 (Wis. 2003); Sharp v.
Case Corp., 595 N.W.2d 380, 384 (1999). The district court
No. 04-1171                                                9

reviewed the potentially competing state laws and deter-
mined that Delaware, Tennessee, and Wisconsin law would
compel the same result. Neither party challenges the
district court’s conclusion on this matter and our review
yields the same finding.
  The district court concluded that each of Wright’s four
tort-based counterclaims was barred by the economic loss
doctrine. The economic loss doctrine seeks to preserve the
distinction between contract and tort law and to prevent
parties from eschewing agreed-upon contract remedies and
seeking broader remedies under tort theory than the con-
tract would have permitted. Ins. Co. of N. Am. v. Cease Elec.
Inc., 688 N.W.2d 462, 467 (Wis. 2004). “Economic loss” for
purposes of the doctrine is “the loss in a product’s value
which occurs because the product is inferior in quality and
does not work for the purposes for which it was manufac-
tured and sold.” Id. (internal citations omitted). The eco-
nomic loss doctrine “forbids commercial contracting parties
(as distinct from consumers, and other individuals not
engaged in business) to escalate their contract dispute into
a charge of tortious misrepresentation if they could easily
have protected themselves from the misrepresentation of
which they now complain.” All-Tech Telecom, Inc. v. Amway
Corp., 174 F.3d 862, 866 (7th Cir. 1999) (applying Wisconsin
law). In short, parties cannot use tort principles to circum-
vent the terms of an agreement. Wausau Tile, Inc. v. County
Concrete Corp., 593 N.W.2d 445, 451-52 (Wis. 1999). The
doctrine’s purpose is to “maintain the fundamental distinc-
tion between tort law and contract law; protect commercial
parties’ freedom to allocate economic risk by contract; and
encourage the party best situated to assess the risk of eco-
nomic loss, the commercial purchaser, to assume, allocate,
or insure against that risk.” Digicorp, Inc. v. Ameritech
Corp., 662 N.W.2d 652, 659 (Wis. 2003).
  Recently (since the parties briefed the issue on appeal),
the Wisconsin Supreme Court has held that the economic
10                                               No. 04-1171

loss doctrine does not apply to claims for the negligent pro-
vision of services. Cease Elec., 688 N.W.2d at 472. Wright
claims that the contract between itself and CERAbio cen-
tered on the provision of services, that is, the installation
of equipment, training, and achievement of Verification.
CERAbio, on the other hand, maintains that the Asset
Purchase Agreement is a contract for the sale of all assets
of a business, not a service contract like the one in Cease
Electric. We agree with CERAbio that the service contract
exception should not apply. Our review of the Asset Purchase
Agreement confirms that it was indeed a contract for the
sale of all of the assets of CERAbio. The fact that some of
the assets included technological knowledge and skills that
had to be transferred from CERAbio’s employees to Wright’s
employees does not alter the fundamental nature of the
contract as one for the sale of goods. Moreover, the policy
considerations that prompted the Wisconsin Supreme Court
to exempt service contracts from the economic loss doctrine
are simply not at play here. Most service contracts, the
Wisconsin Supreme Court reasoned (like those to mow the
lawn or unclog a drain), are oral and informal and parties
rarely hire attorneys to allocate risks and limit remedies.
Cease Elec., 688 N.W.2d at 470-71. In many service con-
tracts, furthermore, the information disparities between the
parties make it unlikely that each party can negotiate the
terms with the same level of bargaining power. Id. at 471.
None of these policy considerations apply in this case.
Wright and CERAbio, both well-represented, sophisticated
business parties, drafted complex, detailed agreements
which could and indeed did allocate risks and assign reme-
dies. We conclude, therefore, that the economic loss doctrine
applies.
  The question then becomes whether there are any excep-
tions to the economic loss doctrine that might keep Wright’s
tort claims alive. The district court correctly discerned that
Wisconsin recognizes a fraud in the inducement exception
No. 04-1171                                                 11

to the economic loss doctrine. (Short App. at 13) (R. at 37,
p.13) (citing Digicorp, 662 N.W.2d at 662). The court below,
however, incorrectly stated that the Wisconsin Supreme
Court had expressly adopted a narrow exception akin to the
one announced in a Michigan case—Huron Tool and Eng’g
Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541
(Mich. Ct. App. 1995). That very narrow exception limits
fraud in the inducement claims to situations where the
claimed fraud is extraneous to, rather than interwoven with
the contract, that is, where the fraud concerns those mat-
ters that were not expressly or impliedly addressed in the
contract. Digicorp, 662 N.W.2d at 662. Digicorp, however,
did not so hold. Although four justices of the five-member
court recognized some form of a fraud in the inducement
exception to the economic loss doctrine, only two justices
announced their recognition of a narrow Huron-Tool-like
exception.3 Id. at 662. Two justices dissented announcing
that they would have upheld the previous broad exception
set forth in Douglas-Hanson Co. v. BF Goodrich Co., 598
N.W.2d 262 (Wis. Ct. App. 1999), aff’d, 607 N.W.2d 621
(Wis. 2000), allowing a plaintiff to make a claim for in-
tentional misrepresentation when the misrepresentation
fraudulently induces a plaintiff to enter into a contract.
Digicorp, 662 N.W.2d at 670. A third justice concluded in a
dissent that any fraud in the inducement exception was
unnecessary. Id. at 667. In short, a majority (three) of the
justices overruled the broad exception announced in
Douglas-Hanson, but a separate, but different three-mem-
ber majority rejected the narrow Huron Tool exception. See
Tietsworth v. Harley Davidson, Inc., 677 N.W.2d 233, 243-
44 (Wis. 2004). The most we can discern from Digicorp,
therefore, is that the fraud in the inducement exception to
the economic loss doctrine is more narrow than that an-
nounced in Douglas-Hanson and that it does not apply

3
  Two justices on the seven-member court did not participate in
the decision at all.
12                                                     No. 04-1171

when the fraud pertains to the character and quality of the
goods that are the subject matter of the contract. Id. at
244.4
  This is enough information, however, for us to conclude
that the fraud in the inducement exception should not apply
to the specific facts of this case. Recall that the purpose of
the fraud in the inducement exception is to address the
“special situation where parties to a contract appear to ne-
gotiate freely—which normally would constitute grounds for
invoking the economic loss doctrine—but where in fact the
ability of one party to negotiate fair terms and make an in-
formed decision is undermined by the other party’s fraudu-
lent behavior.” Digicorp, 662 N.W.2d at 662 (quoting Huron
Tool, 532 N.W.2d at 545). It does not address the situation
where “the only misrepresentation by the dishonest party
concerns the quality or character of the goods sold, [as] the

4
   Like Wisconsin, Delaware and Tennessee also limit the fraud in
the inducement exception to matters not expressly addressed in
the contract. See Trinity Indus., Inc. v. McKinnon Bridge Co., Inc.,
77 S.W.3d 159, 172 (Tenn. Ct. App. 2001) (“Courts should be parti-
cularly skeptical of business plaintiffs who—having negotiated an
elaborate contract or having signed a form when they wish they
had not—claim to have a right in tort whether the tort theory
is negligent misrepresentation, strict tort, or negligence.”);
Christiana Marine Serv. Corp. v. Texaco Fuel and Marine Mktg.,
Inc., No. Civ. A. 98C-02-217WCC, 2002 WL 1335360, *5 (Del.
Super. Ct. June 13, 2002) (“The economic loss doctrine. . . forbids
plaintiffs from recovering in tort for losses suffered that are solely
economic in nature . . . . While initially a doctrine related to prod-
uct liability actions, the courts have expanded the doctrine’s
application beyond its original scope to any kind of dispute arising
from a commercial transaction where the alleged damages do no
harm to a person or to property other than the bargained for
item.”). (Citation to unpublished authority is permissible pursuant
to Del. Sup. Ct. R. 14(b)(vi)(4), and therefore permissible pursuant
to our Circuit Rule 53(e). See also New Castle County v. Goodman,
461 A.2d 1012, 1013 (Del. 1983)).
No. 04-1171                                                 13

other party is still free to negotiate warranty and other
terms to account for possible defects in the goods.” Id. Tort
remedies are inappropriate where commercial contracting
parties could have easily protected themselves from the
misrepresentation of which they now complain. All-Tech
Telecom, 174 F.3d at 866. In this case, the parties to the con-
tract were two sophisticated and well-represented business
entities. The crux of their agreement centered around the
sale and purchase of the assets of CERAbio’s business—
primarily a process for producing Apatight. Wright’s pri-
mary concern should have been, and indeed was, whether
it was purchasing a process that could be replicated by
Wright. Of course, if it could not, Wright would be paying
$3 million dollars for a product with no value to it. Wright
was free to, and in fact did, negotiate warranty and other
terms to account for the possibility that the process could
not be replicated. Wright’s remedies, therefore must be
limited to contract claims.
   As we have cautioned before, we do not mean to imply
that the tort of misrepresentation is abolished in all cases
in which the plaintiff and defendant are commercial entities
with a pre-existing contractual relationship. Id. at 866. The
fraud in the inducement exception to the economic loss doc-
trine, however, does not apply in this particular case where
two sophisticated commercial entities created contractual
remedies to address the concern that the product Wright
was purchasing from CERAbio might not result in the de-
sired outcome either because the process was not repeatable
or because the starting materials were not available. The
alleged fraud in this case pertains to the character and qua-
lity of the product that is the subject matter of the contract.
See Tietsworth, 677 N.W.2d at 244. “Misrepresentations
such as these, that ultimately concern the quality of the
product sold, are properly remedied through claims for
breach of warranty.” Cooper Power Sys., Inc. v. Union
Carbide Chems. & Plastics Co., Inc., 123 F.3d 675, 682 (7th
Cir. 1997).
14                                                 No. 04-1171

  Whether or not the process was repeatable was addressed
contractually by the complex process set forth in the con-
tract for Verification. The agreement between the parties
was contingent upon Wright producing three test lots
meeting the specifications outlined in the Agreement. Of
course, if the starting materials were not available, Verifi-
cation could not be achieved. The Agreement addressed the
availability of starting materials in another manner as well.
The disclaimer of warranty provision contained in the Non-
Disclosure Agreement specified that CERAbio provided all
information to Wright on an “as is” basis and that CERAbio:
     makes no warranty, either express or implied, concern-
     ing the Information, including, without limitation, its
     accuracy, completeness, or to the non-infringement of
     intellectual property rights or other rights of third per-
     sons or Discloser. Recipient assumes all risk in, and
     Discloser will not be liable for any damages arising out
     of, use of information including, without limitation, bus-
     iness decisions made or inferences drawn by Recipient
     in reliance on the Information or the fact of the disclo-
     sure of the Information.5, 6
(App. at 1078-79) (R. at 36, Ex. A, ¶ 8) (emphasis ours).
This type of disclaimer is referred to as a non-reliance
clause. Furthermore, the integration clause in the asset
purchase agreement incorporates this non-disclosure agree-
ment and likewise allocates to Wright the risk that the
information provided by CERAbio might be incomplete or
incorrect. This clause states:

5
  Information is defined as “all information furnished by the
Discloser to Recipient, whether or not Confidential
Information . . . .” (App. at 1078) (R. at 36, Ex. A, ¶ 8).
6
  The Asset Purchase Agreement contains an integration clause
that incorporates the parties’ Non-Disclosure Agreement. (App. at
739, ¶ 10.7) (R. at 2, Ex. A, ¶ 10.7).
No. 04-1171                                                 15

    This Agreement, including schedules and exhibits
    referred to herein, and the NDA [Non-Disclosure
    Agreement] embody the entire agreement and under-
    standing of the parties hereto . . . . There are no restric-
    tions, promises, representations, warranties, covenants
    or undertakings of Seller contained in any material
    made available to Buyer pursuant to the terms of the
    NDA, or the correspondence between Seller and Buyer.
(App. at 739, ¶ 10.7) (R. at 2, Ex. A, ¶ 10.7).
  These provisions allocated to Wright the risk that the
information provided by CERAbio might be incomplete or
incorrect. Wright assured CERAbio in writing that it would
not rely on information provided by CERAbio. Not only does
this non-reliance clause verify that the alleged fraud was
interwoven with the parties’ contractual agreement, and
thus barred by the economic loss doctrine, it also confirms
the district court’s finding that Wright could not have rea-
sonably relied on CERAbio’s oral representation as to the
viability of the process or the availability of starting mater-
ials.
   Wright challenges the proposition that commercial parties
can never demonstrate reasonable reliance on misrepresen-
tation in the face of a non-reliance clause. For this portion
of the dispute, we must consider the force and effect of a
clause in the contract—the non-reliance clause—which the
parties agreed to construe in accordance with Delaware law.
Although the Delaware Supreme Court has offered no defin-
itive conclusion, recent opinions of the Delaware chancery
courts have repeatedly concluded that “sophisticated parties
to negotiated commercial contracts may not reasonably rely
on information that they contractually agreed did not form
a part of the basis for their decision to contract.” H-M
Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 (Del. Ch.
2003). See also Kronenberg v. Katz, ___ A.2d ___, No. Civ. A.
19964, 2004 WL 1152282, at * 17 (Del. Ch. May 19, 2004);
16                                               No. 04-1171

Progressive Int’l Corp. V. E.I. Du Pont De Nemours & Co.,
No. C.A. 19209, 2002 WL 1558382, at *7 (Del. Ch. July 9,
2002) (“sophisticated parties may not rely upon representa-
tions that are inconsistent with a negotiated contract, when
that contract contains a provision explicitly disclaiming
reliance upon such outside representations.”); Great Lakes
Chem. Corp. v. Pharmacia Corp., 788 A.2d 544, 555
(Del. Ch. 2001) (same).
  Wright lashes at this windmill of Delaware authority by
arguing that none of the cases established a per se rule that
commercial parties can never demonstrate reasonable reli-
ance on misrepresentations in the face of a purported non-
reliance clause. Wright claims instead that those courts
made fact-specific determinations about whether plaintiffs
could have reasonably relied upon the defendants’ misrepre-
sentations. This may, in fact, be the case, but it does not get
Wright anywhere. The relevant facts in Great Lakes have a
familiar ring. The case involved “two highly sophisticated
parties, assisted by industry consultants and experienced
legal counsel, [who] entered into carefully negotiated dis-
claimer language after months of extensive due dili-
gence . . . [and who] explicitly allocated their risks and
obligations in the Purchase Agreement.” Id. at 555. Noting
the carefully negotiated and crafted nature of the agree-
ments, the Great Lakes court concluded that “to allow [the
buyer] to assert, under the rubric of fraud, claims that are
explicitly precluded by contract, would defeat the reason-
able commercial expectations of the contracting parties and
eviscerate the utility of written contractual agreements.” Id.
at 556. The same is true here.
  This philosophy is not unique to the Delaware courts.
This court and others have held that a written anti-reliance
clause in a stock purchase agreement precludes any claim
of deceit by prior representations. Rissman v. Rissman, 213
F.3d 381, 383 (7th Cir. 2000). In Rissman we pointed out
that a non-reliance clause is part of the negotiated bargain.
No. 04-1171                                                17

Id. at 384. CERAbio could have assumed the risk of claims
based on oral statements it made, but it likely would have
increased the purchase price accordingly. Rissman, 213
F.3d at 388. See also Cook v. Little Caeser Enters., Inc., 210
F.3d 653, 658 (6th Cir. 2000) (applying Michigan law and
concluding that the existence of an integration clause in the
franchise agreements made the buyer’s alleged reliance on
prior representations unreasonable); Velten v. Regis B.
Lippert, Intercat, Inc., 985 F.2d 1515, 1522 (11th Cir. 1993)
(a buyer who signs an agreement that provides in essence
that no representation, promise or inducement not included
in the contract shall bind any party cannot later claim
damages for fraud); Warner Theatre Assocs. Ltd. P’ship v.
Metro. Life Ins. Co., 149 F.3d 134, 136 (2d Cir. 1998) (“a
specific disclaimer in an agreement destroys the allegations
in a plaintiff’s complaint that the agreement was executed
in reliance upon contrary oral representations.”). Even were
we to take a less absolute, case-by-case assessment of the
validity of the non-reliance clause (as urged by the concur-
rence in Rissman), our conclusion would not differ. In this
case the parties were sophisticated commercial entities as-
sisted by counsel and the facts surrounding the materiality
and intentionality of the misrepresentation are highly con-
tested. See Rissman, 213 F.3d at 388 (Rovner, J., concurring)
(considering factors that might be relevant in determining
whether an investor’s reliance on prior statements was
reasonable despite the existence of a non-reliance clause).
We are not unsympathetic to the notion that Wright was
purchasing a secret process and therefore in all likelihood
it could not investigate independently whether the starting
materials were commercially available, but “[c]ontractual
language serves its function only if enforced consistently,”
id. at 385, and parties to contracts are best served by rul-
ings enforcing the express terms of agreements into which
they enter.
18                                              No. 04-1171

  Wright and CERAbio bargained for the allocation of risks
contained in the Agreement and Wright accepted the risk
that it might receive faulty oral information from CERAbio.
The district court correctly concluded, therefore, that
Wright’s counterclaim for fraudulent inducement could not
stand.
  Wright’s other counterclaims allege negligent misrepre-
sentation in the formation of the contract, negligent misrep-
resentation in the performance of the contract, and fraud in
the performance. Any economic loss caused by these acts,
however, is best addressed through the contractual reme-
dies to which the parties agreed.
  For example, Wright claims that CERAbio negligently
misrepresented information that induced Wright to enter
into the Agreement. Although the Wisconsin Supreme Court
has not yet specifically addressed the economic loss doctrine
in this context, the appellate courts have laid the ground
work. See Selzer v. Brunsell Bros., Ltd., 652 N.W.2d 806,
831-32 (Wis. Ct. App. 2002) (economic loss doctrine prevents
tort claims for negligent misrepresentation); Kailin v.
Armstrong, 643 N.W.2d 132, 146 n.20 (Wis. Ct. App. 2002)
(noting that the Wisconsin appellate courts have applied
the economic loss doctrine to bar a negligent misrepresen-
tation that induced a contract); Prent Corp. v. Martek
Holdings, Inc., 618 N.W.2d 201, 208 (Wis. Ct. App. 2000)
(economic loss doctrine bars recovery for negligent misrep-
resentation to a commercial buyer of a product). It is no
stretch to assume that the Wisconsin Supreme Court would
follow suit. In describing the policy reasons surrounding the
economic loss doctrine, that court has followed a path that
protects commercial parties’ freedom to allocate economic
risk and encourages the party best situated to assess the
risk of economic loss, and to assume, allocate, or insure
against that risk. See Digicorp, 662 N.W.2d at 659. For the
same reasons, we conclude that the district court was cor-
rect in determining that the economic loss doctrine would
No. 04-1171                                                 19

preclude Wright’s claims that CERAbio negligently or frau-
dulently misrepresented information during the performance
of the contract to convince the defendant that verification
had occurred. (Short App. at 25) (R. at 37, p.25). These are
simple contract claims disguised in tort claim clothing. If
CERAbio breached its duties to perform its tasks during
Verification, Wright’s remedy lies in contract.
   Wright argues that Tennessee law applies to its post-con-
tract fraud claims. But under Tennessee law, like Wisconsin
law, we see no support for allowing Wright to wrap its con-
tract claims in tort language. In Ritter v. Custom
Chemicides, Inc., 912 S.W.2d 128, 133 (Tenn. 1996), the
Tennessee Supreme Court made clear that it was joining the
economic loss doctrine bandwagon noting that negligence
theory was an inappropriate method to resolve injuries
causing economic loss (in the Ritter case, from product
liability). Id. “When a product does not perform as expected,”
the Ritter court went on to explain, “the buyer’s remedy
should be governed by the rules of contract, which tradition-
ally protect expectation interests.” Id. n.8. This conclusion
followed logically from a much earlier Tennessee Supreme
Court decision ruling that a cause of action for breach of
contract—even negligent or fraudulent—remains in contract
rather than tort. Mid-South Milling Co. v. Loret Farms,
Inc., 521 S.W.2d 586, 588 (Tenn. 1975). The Tennessee
appellate court has applied Ritter and Mid-South Milling to
a contract for the sale of goods, holding that “[i]n a contract
for the sale of goods where the only damages alleged come
under the heading of economic losses, the rights and obli-
gations of the buyer and seller are governed exclusively by
contract.” Trinity Indus., Inc. v. McKinnon Bridge Co., Inc.,
77 S.W.3d 159, 171 (Tenn. Ct. App. 2001). The Trinity
Indus. court noted the breadth of the economic loss doctrine
in Tennessee stating, “[c]ourts should be particularly
skeptical of business plaintiffs who—having negotiated an
20                                               No. 04-1171

elaborate contract . . . claim to have a right in tort whether
the tort theory is negligent misrepresentation, strict tort, or
negligence.” Id. at 172.
  For these reasons we uphold the district court’s ruling
granting summary judgment to CERAbio on Wright’s
counter claims sounding in tort.

               B. The Evidentiary Ruling
  Based on its ruling that CERAbio was entitled to sum-
mary judgment on all of Wright’s fraud claims, the district
court concluded that any evidence submitted by Wright that
pre-dated the closing on the Agreement would constitute an
attempt by Wright to reintroduce the fraud argument and
circumvent the ruling. Consequently, the district court cre-
ated a “bright blue line rule.” “Is it before the contract was
entered into? It’s out. Is it afterwards? If indeed there’s no
evidentiary objection to it other than that, it goes in. That’s
the blue line.” (Short App. 52:10-13) (R. at 112, p.25:10-13).
See also (Short App. 64:10-17) (R. at 112, p.40) (“Pre-con-
tract is not relevant. It’s not going to go to the jury because
all you’re doing is attempting to avoid the ruling of this
Court in its Memorandum and Order on Summary
Judgment . . . I’ve already put my line in the sand. I’ve
made a bright blue line and that’s where it stays.”). Wright
argues that the bright blue line rule prevented it from
presenting its defenses to the claim that the contract had
been modified, prevented it from impeaching one of
CERAbio’s star witnesses regarding inconsistencies in his
testimony, and prevented Wright from presenting relevant
and admissible contextual evidence regarding what consti-
tuted a reasonable time for performance of the Agreement.
  We review a district court’s decision regarding the admis-
sibility of evidence for abuse of discretion. U.S. v. Redditt,
381 F.3d 597, 600-01 (7th Cir. 2004). We give particularly
No. 04-1171                                                 21

great deference to the trial court’s decision weighing pro-
bative value against prejudice. Speedy v. Rexnord Corp.,
243 F.3d 397, 404 (7th Cir. 2001). Even if error is found, we
will not reverse a verdict if the error was harmless. U.S. v.
Bonty, 383 F.3d 575, 579 (7th Cir. 2004). A new trial is
warranted only if the error has a substantial and injurious
effect or influence on the determination of a jury, Bintz v.
Bertrand, 403 F.3d 859, 869 (7th Cir. 2005), and the result
is inconsistent with substantial justice. Mihailovich v.
Laatsch, 359 F.3d 892, 913 (7th Cir. 2004), cert. denied, 125
S. Ct. 345 (2004); Shick v. Ill. Dept. of Human Servs., 307
F.3d 605, 611 (7th Cir. 2002). Although this is a tough
hurdle to cross, it is not impossible. We have not hesitated
to overturn blanket evidentiary rulings where we were not
satisfied that the district court exercised sufficient discre-
tion. See Riordan v. Kempiners, 831 F.2d 690, 697 (7th Cir.
1987) (finding that a blanket exclusion of evidence of events
that occurred before a particular time was arbitrary and
warranted a new trial). See also Mihailovich, 359 F.3d at
913-14 (an overbroad exclusion of all evidence regarding
prior accidents on a dangerous roadway created a signi-
ficant chance that the outcome of the trial was affected);
Pub. Serv. Co. of Ind., Inc. v. Bath Iron Works Corp., 773
F.2d 783, 790 (7th Cir. 1985) (exclusion of evidence pre-
cluded the defendant from presenting its complete case and
thus prejudiced its substantial rights). In Riordan, this court
overturned a blanket exclusion of evidence made along
strict temporal lines—in that case all events occurring after
the plaintiff filed her discrimination claim. Riordan, 831
F.2d at 698-99. We noted that the district court should have
used its discretion to consider the evidence individually.
Id. In this case, the trial court’s bright line exclusion of all
pre-Agreement evidence created an arbitrary barrier to
evidence that Wright should have been permitted to present
at trial. The availability vel non of the TCP powder goes to
the heart of the defense that Wright posed to CERAbio’s
contract claim as well as Wright’s own claim for breach of
22                                             No. 04-1171

contract. Consequently, we must conclude that this blanket
exclusion of a fundamental piece of Wright’s case without
any individualized determinations of prejudice affected the
fairness of the judicial proceeding and had a substantial
influence over the jury’s determination.
  The trial court was legitimately concerned that Wright
would try to place before the jury matters that the court
had resolved on summary judgment—fraudulent induce-
ment of the contract, fraud in the performance of the con-
tract, pre-contract negligent representation, and negligent
representation in the performance of the contract. The
bright blue line, however, not only excluded evidence rele-
vant to these claims, but also excluded legitimate evidence
relevant to Wright’s defenses and surviving counter claims.
For example, Wright wished to argue that CERAbio ob-
tained Wright’s agreement to alter the work instructions in
the original Agreement through fraud. According to Wright,
it would have argued that the agreement to modify the
contract was invalid as it was not supported by mutual
assent and consideration as required under Delaware law.
See Continental Ins. Co. v. Rutledge & Co., Inc., 750 A.2d
1219, 1232 (Del. Ch. Ct. 2000). The post-contract fraud
alleged by Wright involved the status of CERAbio’s pre-
contract knowledge and therefore there was no way for
Wright to present its case for fraud to the jury under the
bright blue line rule. As a result, Wright claims that the
jury was left with the erroneous impression that the parties
had mutually, and in good faith, agreed to modify the work
instructions as a result of a glitch unknown to and unpre-
ventable by either party.
  According to Wright, CERAbio fraudulently induced
Wright to modify the Agreement by telling Wright that the
unavailability of the TCP powder was an unexpected and
recently discovered event. After the Agreement had been
executed, CERAbio’s president, James Cassidy, wrote a
letter to Wright stating that the unexpected unavailability
No. 04-1171                                               23

of the TCP powder had rendered meaningless the original
instructions in the Agreement and therefore a modification
to the original work instructions was necessary in order to
proceed. The relevant portion of that letter stated,
    Nothing in the Asset Purchase Agreement states that
    the Work Instructions are set in stone and that they
    may not be changed, if an event occurs that renders
    them meaningless. Such an event has occurred. . . . This
    event, as you are well aware, is the complete unavail-
    ability of Old Powder, that was used in developing
    Work Instructions and that is used in the process. . . .
    CERAbio was not aware of this change prior to Closing.
(App. at 952) (R. at 33, ex. C, p.2) (emphasis ours). Wright’s
position is that the unavailability was neither unexpected
nor unknown and points primarily to the testimony of
CERAbio’s senior product development engineer, Dr. Ko
who stated in his deposition that CERAbio was aware of the
powder supply problems prior to closing on the Agreement.
(App. 133) (R. at 50, ex. E, p.161). Had it known of the de-
ception, Wright claims, it would not have agreed to modify
the Agreement. Although Wright does not describe what
course of action it would have taken, presumably it would
have immediately declared CERAbio to be in breach and
terminated the contract. Although the district court granted
summary judgment to CERAbio on Wright’s fraudulent
inducement and fraudulent performance claims, claims re-
garding modification of the contract had not been excluded
by the summary judgment ruling, and evidence that
CERAbio fraudulently induced Wright to agree to modify
the Agreement was relevant and should have been consid-
ered for admission like any other relevant evidence. The
trial court gave no explanation as to why each individual
piece of evidence would be unduly prejudicial, and barring
such an explanation the decision to exclude the evidence
was arbitrary. By prohibiting all pre-Agreement evidence,
the trial court threw out the baby with the bath water; all
24                                               No. 04-1171

evidence of fraudulently induced modification was thrown
out, not just evidence of fraud in the inducement of the
original contract and fraud in the performance of that con-
tract—the two issues that had been resolved on summary
judgment.
  It is easiest to see the erroneous overbreadth of the bright
blue line ruling when considering Wright’s claim that it was
precluded from entering evidence that CERAbio failed to
perform its end of the contract in a commercially reasonable
amount of time. This argument does not significantly tread
on the territory covered by the summary judgment order,
but was excluded nonetheless by the bright blue line rule.
Wright claims that it was entitled to enter evidence of the
interactions between the two parties prior to signing the
Agreement to give context to the terms, “commercially rea-
sonable time.”
  Paragraph 8.7 of the Agreement states, in part:
     In the event Buyer is unable to produce three (3) Test
     Lots meeting the Specifications within sixty (60) days
     following the Closing Date, Buyer shall so notify Seller,
     and shall allow Seller’s representatives access to the
     Manufacturing Equipment and otherwise reasonably
     cooperate with Seller to determine the causes of the
     failure to produce such Test Lots. If Buyer and Seller
     are unable to determine the causes of the failure to pro-
     duce such Test Lots, then Buyer shall allow Sellers
     representatives to utilize the Manufacturing Equipment
     and materials necessary to produce Test Lots during
     normal business hours, and Seller shall use its commer-
     cially reasonable efforts to produce three (3) Test Lots
     meeting the Specifications.
(App. at 733) (R. at 2, Ex. A, ¶ 8.7). Although the Agree-
ment sets forth a specific number of days for production of
test lots by Wright if Verification was not possible, the
Agreement allows CERAbio to come in and produce the test
No. 04-1171                                                    25

lots itself in a “commercially reasonable amount of time.”
Id. Under Delaware law, if a contract does not specify a
time period for performance, the court will infer a reason-
able time for performance. Allen v. Pictsweet Co., No. Civ. A.
03C-07-026 ES, 2004 WL 2240640, at *3 (Del. Super. Ct.
Sept. 20, 2004), judgment amended, No. Civ. A. 03C-07-
026ESB, 2004 WL 2827860 (Del. Super. Ct. Nov. 18, 2004).7
The parties’ reasonable expectations at the time of contract
formation determine the reasonableness of the challenged
conduct—in this case the reasonable time for CERAbio to
produce test lots after Verification failed. See Continental
Ins. Co, 750 A.2d at 1234. Wright argues that it was entitled
to introduce pre-contract evidence regarding its expecta-
tions and the relationship between the parties to assist the
jury in determining whether CERAbio had a reasonable
time to perform. For example, Wright would have submitted
evidence that initially it had considered merely purchasing
Apatight from CERAbio in a vendor arrangement and that
during the months the two parties discussed this arrange-
ment, CERAbio was ready and able to produce samples of
Apatight to Wright. Wright assumed from this, and from
other information provided by CERAbio, that CERAbio
could readily produce Apatight and that if Wright pur-
chased CERAbio’s assets and know-how, it also could pro-
duce Apatight and enter the market quickly. This evidence
was not related to fraud or negligence and therefore the
blanket exclusion of pre-contract evidence excluded relevant
evidence unrelated to the issues that had been resolved at
summary judgment.
  Wright also claims that the excluded evidence could have
been used to impeach the credibility of CERAbio’s presi-
dent, James Cassidy. Recall that Cassidy wrote a letter to

7
  See supra note 4. Citation to unpublished authority is permissi-
ble pursuant to Delaware Supreme Court Rule 14(b) (vi), and
therefore permissible under our Circuit Rule 53(e). See also New
Castle County v. Goodman, 461 A.2d 1012, 1013 (Del. 1983).
26                                                   No. 04-1171

Wright stating that he had only learned of the powder prob-
lem after the closing of the Agreement. Wright claims that
Cassidy also testified at trial that he only learned of the
powder’s unavailability after closing, although we think
Cassidy’s testimony on this point was somewhat ambigu-
ous.8 Wright wished to give the jury evidence that Cassidy
knew that the powder was unavailable before the parties
entered into the Agreement. To do so, it planned to point
to the deposition testimony of Dr. Ko and several e-mail
exchanges to impeach Wright on this point and attack his
credibility. Wright claims that because Cassidy was one of
only two live witnesses called at trial, his credibility was
particularly important and was relevant to the jury’s deter-
mination of whether his testimony regarding many other
facts essential to CERAbio’s claims should have been
believed. These included the adequacy of CERAbio’s train-
ing of Wright employees and CERABio’s progress toward
Verification. Although this type of impeachment evidence
is not certain to affect the jury’s determinations, we think
the cumulative prejudice imposed by the blanket exclusion
of all pre-Agreement evidence created a substantial and
injurious influence on the jury’s determinations and was
inconsistent with substantial justice.
  Because the exclusion of the evidence likely would have
affected the jury’s conclusions, Wright is entitled to a new
trial absent the arbitrary bright blue line rule that was pre-
viously imposed. We emphasize that the district court need
not allow all pre-contractual evidence in, and may continue
to exclude evidence that might circumvent the court’s ruling

8
   Wright’s attorneys asked Cassidy the following compound ques-
tion: “Now, sir, you had mentioned that you were working—that
after the closing when you discovered that the old powder was no
longer available you told Wright Medical that, correct.” It is un-
clear whether Cassidy’s simple “yes” response to this compound
question meant that he had informed Wright or that he knew of
the problem prior to closing. (App. 383) (R. at 113, p.1-111:17-21).
No. 04-1171                                                 27

at summary judgment or other evidence where the preju-
dice outweighs the probative value. The court, however, will
have to make such determinations on a case-by-case basis
rather than relying on an inflexible temporal line. This con-
clusion makes it unnecessary for us to consider whether the
court erred by denying Wright’s motion for judgment as a
matter of law. Furthermore, we leave it to the discretion of
the trial court to determine whether Wright is entitled to a
jury instruction that the mutual assent required to support
a contract modification is negated where that assent is
obtained by fraud. Whether or not such an instruction is
warranted will depend on which evidence the trial court
ultimately allows in under its case-by-case analysis.

                       C. Damages
  Like the other evidentiary rulings, we review the district
court’s decision to exclude Wright’s damages expert for
abuse of discretion only. Redditt, 381 F.3d at 600-01. Conse-
quential damages were specifically precluded by the
Agreement:
    9.4.2 In no event shall any party be liable to another
    party for any incidental, special or consequential dam-
    ages of any nature, including but not limited to loss of
    profits, loss of use of the Assets or revenue, expenses in-
    volving cost of capital, or claims of customers, whether
    such damages are a result of breach of this Agreement
    or otherwise.
    (App. at 737) (R. at 2, Ex. A, ¶ 9.4.2).
  Judge Shabaz determined that the damages calculated by
Wright’s expert, Daniel Gotter represented prohibited con-
sequential damages, and we see no evidence that he abused
his discretion on this matter.
28                                            No. 04-1171

                           III.
  For the foregoing reasons, we affirm in part, and reverse
and remand in part for further proceedings consistent with
this opinion. The parties shall bear their own costs of
appeal.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                  USCA-02-C-0072—6-13-05