Court Opinion

ID: 4186069
Source: CourtListenerOpinion
Date Created: 2017-07-13 21:01:16.125348+00
Date Added: 2024-06-11T09:24:08.726087
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________

Nos. 16-3893 & 17-1045

TATE & LYLE AMERICAS LLC, and AMERICAN GUARANTEE AND
 LIABILITY INSURANCE CO.,
                                      Plaintiffs-Appellees,

                                 v.

GLATT AIR TECHNIQUES INC.,
                                               Defendant-Appellant.
                    ____________________

        Appeal from the United States District Court for the
                     Central District of Illinois.
       No. 2:13-cv-02037-EIL — Eric I. Long, Magistrate Judge.
                    ____________________

        ARGUED JUNE 1, 2017— DECIDED JULY 13, 2017
                 ____________________

   Before BAUER, POSNER, and HAMILTON, Circuit Judges.
   POSNER, Circuit Judge. The plaintiff, which for simplicity
we’ll call just Tate, sells ingredients used in the food and
beverage industry. The defendant, Glatt, a member of a sub-
stantial German conglomerate called the Glatt group, sells
processing equipment to the food industry. In 2008 Tate and
2                                      Nos. 16-3893 & 17-1045

Glatt made a contract whereby Glatt would for $7,042,022
design and build a three-story-tall food-manufacturing ma-
chine called a granulator, which would be installed on Tate’s
premises in Sycamore, Illinois. The following year, after the
granulator was up and running, it caught fire and was seri-
ously damaged. The product being processed at the time of
the fire was a corn product that was flammable and during
processing gave off flammable dust.
    More than three years later Tate brought this lawsuit
against Glatt, basing federal jurisdiction on diversity of citi-
zenship and claiming that the fire had resulted from defects
in the granulator—either failure to install a fire-suppression
system or defects in filters essential to filtering the flamma-
ble dust from the exhaust of the machine.
    Tate sought damages of $7,784,767 for damage to its
property, repair costs, and lost profits. Its insurer, American
Guarantee, paid it $2,743,248, and then joined the litigation
to recover that expenditure from Glatt. Glatt counterclaimed
against Tate for $976,500, the unpaid balance on the contract
for the granulator, although it later reduced its damages re-
quest to $700,000. The parties agreed to allow a magistrate
judge, Eric Long, to preside, who ruled that a provision of
the contract between Tate and Glatt forbidding the recovery
of “special damages” prohibited Tate (and therefore its in-
surer) from recovering lost profits. As a result of this ruling,
Tate reduced its damages claim to $972,000 and the insurer
reduced its claim to $853,254.
     The case went to a jury, which awarded the insurer
$853,254, but Tate and Glatt nothing. But Tate was entitled,
the judge ruled, to recover some attorneys’ fees and other
litigation expenses from Glatt pursuant to a provision of the
Nos. 16-3893 & 17-1045                                       3

contract between the companies that entitled a prevailing
party to “reasonable legal and other professional fees and
expenses.” The judge awarded Tate $785,422.50, and its in-
surer $213,313.50, in attorneys’ fees. He awarded an addi-
tional sum in professional fees and expenses of $356,075.96,
but didn’t indicate how he was splitting the amount between
Tate and its insurer.
    Pointing to a provision in the contract that forbids the
award of “special damages,” Glatt argues that attorneys’
fees, along with other professional fees and expenses, are
“special damages”—but obviously not in this contract, as it
would wipe out the provision awarding such fees and ex-
penses to the prevailing parties, Tate and the insurer.
    At the trial Tate argued that the fire had been caused by
an electrostatic spark from a defective filter. Glatt argued
that the cause of the fire had been unrelated to the filters—
rather that the powder in the granulator had “self-heated”
by undergoing a heat-releasing chemical reaction that had
raised the temperature of the product to a height at which it
caught fire.
    Glatt argues that the judge should not have allowed Tate
to argue to the jury that any of the filters in the granulator
were defective, because before the trial Tate had in response
to a request for admissions by Glatt admitted not being
“presently aware of anyone that observed cracked, chipped,
or poorly fitting filters in the Granulator following work per-
formed by Dynacoil [a Glatt contractor, shortly before the
fire],” and Tate also admitted not having discovered “any
evidence that one or more of the Granulator filters or filter
housings [was] cracked, chipped or poorly fitting at the time
the September 17, 2009 fire started.”
4                                      Nos. 16-3893 & 17-1045

    Federal Rule of Civil Procedure 36(b) states that “a mat-
ter admitted under this rule is conclusively established un-
less the court, on motion, permits the admission to be with-
drawn or amended. Subject to Rule 16(e), the court may
permit withdrawal or amendment if it would promote the
presentation of the merits of the action and if the court is not
persuaded that it would prejudice the requesting party in
maintaining or defending the action on the merits.” In other
words, while “a judicial admission is conclusive, unless the
court allows it to be withdrawn,” Keller v. United States, 58
F.3d 1194, 1198 n. 8 (7th Cir. 1995), the district judge in this
case did that, albeit informally, when he allowed Tate, over
Glatt’s objection, to argue and present testimony that there
had indeed been defective filters in the granulator before the
fire occurred. Had Tate’s evidence contradicted its admis-
sion, then the district court would have erred, because Tate
never moved to withdraw or amend the admission in ques-
tion. But there was no contradiction.
     Glatt exaggerates the scope of Tate’s admissions. They
were not unqualified—Tate had explained that although it
had no “direct evidence that one or more of the Granulator
filters or filter housings was cracked or chipped at the time
the fire started,” as the filters that were in the Granulator at
the time of the fire had been destroyed by the fire, it had in-
direct evidence suggesting that one or more than one filter
may have been cracked at the time of the fire. Read as a
whole, far from admitting that there was no possibility that
any evidence of defective filters predated the fire, Tate mere-
ly denied having any direct evidence, instead asserting that
“following the fire, additional work needed to be done to the
filter housing because filters were poorly fitting which
would suggest the filter housing and filters [had] remained
Nos. 16-3893 & 17-1045                                          5

poorly fitting even at the time of the fire.” And two months
after Tate had submitted its very limited admissions, it sup-
plemented them by presenting evidence that no fewer than
16 filters installed in the Granulator before the fire had been
damaged. Tate should have invoked Rule 36(b), but as its
failure to do so was harmless when all the evidence is con-
sidered, to order a new trial on the basis of a technical error
would be to arrogate form over substance, wasting every-
body’s time to no purpose.
    Glatt’s brief recites a laundry list of additional alleged er-
rors in the proceedings below, relating to the admission of
evidence, its request for additional discovery, and other mat-
ters. But its arguments are close to being cursory, and the
issues they raise were resolved soundly by the trial judge.
    Because we find that neither the magistrate judge nor the
jury committed a reversible error, the judgment of the dis-
trict court is
                                                      AFFIRMED.
6                                        Nos. 16-3893 & 17-1045

     HAMILTON, Circuit Judge, dissenting. I agree with the ma-
jority’s resolution of all but one of the many issues raised in
this appeal. The one exception is the judge’s decision to allow
plaintiffs to present evidence contrary to their Rule 36 admis-
sions. The judge abused his discretion by applying the wrong
legal standard to resolve this pivotal issue incorrectly. What
the majority downplays as a “technical error” allowed plain-
tiffs to ambush Glatt at trial on a critical issue. I would reverse
and remand for a new trial on that basis.
    Plaintiffs offered two theories to hold defendant Glatt lia-
ble for the fire. One was that one or more plastic filters in the
granulator were cracked, and that cracks allowed metal inside
the filter to contact other metal parts so as to cause a spark
that started the fire. Defendant Glatt served requests for ad-
missions under Federal Rule of Civil Procedure 36. Three
asked plaintiffs to admit in essence that they had no evidence
that filters were cracked at the time of the fire.
   Plaintiffs’ responses were convoluted, but the bottom line
was that plaintiffs admitted they had not discovered any evi-
dence that one or more of the filters or filter housings was
cracked at the time of the fire. Cf. McCann v. Mangialardi, 337
F.3d 782, 788 (7th Cir. 2003) (district court erred by failing to
give preclusive effect to plaintiff’s Rule 36 admission that he
had no evidence that defendant withheld exculpatory evi-
dence; admission was fatal to plaintiff’s claim).
    At trial, however, the judge allowed plaintiffs to contradict
their admissions on this critical issue. The majority errs by
claiming “there was no contradiction” because the admissions
were “not unqualified.” Ante at 4. Read as a whole, the ma-
jority argues, Tate & Lyle indicated in its admissions that it
had indirect evidence of cracked filters at the time of the fire.
Nos. 16-3893 & 17-1045                                                        7

The admissions should be read as a whole, and to that end I
have reproduced them in full as an appendix. 1
     Glatt’s requests for admissions tried to learn in three dif-
ferent ways whether plaintiffs had any evidence that cracked
filters were in the granulator at the time of the September 17,
2009 fire. The first two requests (Nos. 7 and 8) focused on
whether plaintiffs had “observe[d]” or were “informed”
about cracked filters after Dynacoil’s filter repairs in August
2009. Although plaintiffs “denied” those requests, they went
on to say: “it is admitted T&L is not presently aware of anyone
that observed cracked, chipped, or poorly fitting filters in the
Granulator following work performed by Dynacoil in August
or September of 2009.”
    Despite this admission, plaintiffs’ expert witness testified
at trial that he had “been told that there were some 16 of these
damaged or cracked filters, in fact, in the machine before the
fire.” SA 61. The district court excused the jury and acknowl-
edged that although the expert had said the broken filters
were in the granulator “before the fire, it certainly came across
as at the time of the fire so that’s why I excused the jury to
make sure that this didn’t become worse than it needs to be.”
SA 66–67. Outside the presence of the jury, plaintiffs’ counsel
admitted that he had told the expert that 16 broken filters were inside
the granulator on September 1st. SA 65. The expert also said:

    1 While parts of the responses were convoluted and as the majority
says “not unqualified,” the qualifications were not relevant to the way in
which plaintiffs’ contradicted their admissions. The “qualifications” in the
admissions speculated that the “new” filters installed after the August
2009 repairs could have experienced stress and cracked. Plaintiffs offered
evidence at trial, however, that the old cracked filters were reinstalled in the
granulator after the repairs.
8                                         Nos. 16-3893 & 17-1045

“What I have been told is this, that on September 1st, if I re-
member that date correctly, I may be off a day or two, that
they had put in there those broken filters. And from Septem-
ber 1st to the 17th, and for a good number of days in fact, the
machine had not been in operation.” SA 69–70.
    Making matters worse, one of plaintiffs’ employees volun-
teered in cross-examination that he reinserted cracked filters
into the granulator after the repairs:
    Q: Okay. Well, isn’t it true that you had a conversation
    with Mr. Wenrich sometime before the fire where Mr.
    Wenrich had asked you about the filter issue, and you
    had told him that you weren’t aware of any filters that
    have been damaged since the repair was done three
    weeks ago?
    A: Yes, so that, that does say that. But we had cracked
    filters that we had been using to fill the granulator. [Note
    that this was volunteered and non-responsive.]
    Q: Well, you had a whole—this is the first time I’m hear-
    ing this so—you had a full stock of filters in your pos-
    session, did you not?
    A: Yep.
    Q: So, you didn’t use those stock filters to replace the
    cracked ones then?
    A: We used some of them, but we continued using
    some of the cracked ones also because I didn’t want to
    keep cracking more filters.
Dkt. No. 299 at 140–41 (emphases added). This testimony di-
rectly contradicted Admissions 7 and 8.
Nos. 16-3893 & 17-1045                                          9

    Glatt’s third request (No. 9) was even broader than the first
two. It sought admission that plaintiffs “have not discovered
any evidence that one or more of the Granulator filters” was
cracked at the time of the fire on September 17, 2009. (Empha-
sis added.) Tate & Lyle’s first sentence in response said: “It ad-
mits the allegations in Paragraph 9 as it pertains to cracked or
chipped filters or housing.” It continued by noting that it had
“not discovered direct evidence” of cracked filters, but it spec-
ulated that “it was possible” some filter elements were under
stress after the repairs and could have broken again.
     Again, this admission was directly contradicted by plain-
tiffs’ witness at trial:
   Q: Okay. My question, though, is on September 17th of
   2009 and after Dynacoil had gone and done this retrofit
   program and had modified these filter housings, my
   understanding is that there is no evidence whatsoever
   that there was any cracked filters inside the granulator;
   isn’t that true?
   A: No. That is not true.
   Q: So, you know there were cracked filters inside the
   granulator afterwards?
   A: Yeah, while we were running, yes.
   Q: Okay. So, you’re saying that on September 17th of
   2009, there were cracked filters inside the granulator?
   A: Yes.
Dkt. No. 299 at 137.
   Despite these contradictions, plaintiffs never moved un-
der Rule 36(b) to withdraw or amend their admissions. When
Glatt objected based on plaintiffs’ Rule 36 admissions, the
10                                      Nos. 16-3893 & 17-1045

judge told Glatt it should simply “argue the weight of the ev-
idence.” The judge explained that in allowing plaintiffs to of-
fer the evidence contradicting their Rule 36 admissions, he
was relying on David v. Caterpillar, Inc., 324 F.3d 851, 856–57
(7th Cir. 2003).
    That was an abuse of discretion because the judge applied
the wrong law, the wrong legal standard. See, e.g., Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 402 (1990); Ervin v. OS
Restaurant Services, Inc., 632 F.3d 971, 976 (7th Cir. 2011). The
David case dealt with parties’ more general duty to supple-
ment discovery responses under Rule 26(e) and sanctions un-
der Rule 37. By relying on David and handling this issue as he
did, the judge failed to appreciate: (1) the effect of a Rule 36
admission; (2) the procedure for withdrawing such an admis-
sion; and (3) the different standard that applies under Rule
36(b). See 8B Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 2264 at 400 (3d ed. 2010) (“To the ex-
tent that there is an inconsistency, the specific provision of
Rule 36(b) should control over the general provision of Rule
26(e)”; withdrawal or amendment of Rule 36 admission must
satisfy requirements of Rule 36(b)).
    First, the judge overlooked the most important difference
between other discovery responses and Rule 36 admissions:
admitted matters are not merely evidence but are “conclu-
sively established.” Rule 36(b); Banos v. City of Chicago, 398
F.3d 889, 892 (7th Cir. 2005) (affirming denial of leave to with-
draw admissions). Advisory committee notes show that clar-
ifying just this point was a chief purpose of the 1970 amend-
ments to Rule 36(b).
Nos. 16-3893 & 17-1045                                         11

    Second, if a party wants to withdraw or amend a Rule 36
admission, Rule 36(b) expressly requires a “motion.” No mo-
tion was filed here. See Kalis v. Colgate-Palmolive Co., 231 F.3d
1049, 1059 (7th Cir. 2000) (affirming decision based on admis-
sions where responding party never filed a motion to with-
draw); American Automobile Ass’n v. AAA Legal Clinic, 930 F.2d
1117, 1120 (5th Cir. 1991) (reversing admission of evidence
contradicting Rule 36 admission without motion to withdraw
or amend admissions); 999 v. C.I.T. Corp., 776 F.2d 866, 869 (9th
Cir. 1985) (affirming refusal to allow evidence at trial to con-
tradict Rule 36 admission). And as the AAA and 999 courts
made clear, trial is ordinarily far too late even for a formal mo-
tion to withdraw or amend.
    Third, even if we overlook the lack of a motion, the sub-
stantive standard for withdrawal or amendment under Rule
36(b) is much more demanding than the David standard the
trial judge applied here. Rule 36(b) provides:
       Subject to Rule 16(e) [endorsing importance of
       final pretrial order that may be modified only to
       prevent “manifest injustice”], the court may
       permit withdrawal or amendment if it would
       promote the presentation of the merits of the ac-
       tion and if the court is not persuaded that it
       would prejudice the requesting party in main-
       taining or defending the action on the merits.
Admissions are not merely evidence to weigh. They are judi-
cial admissions. They cannot be contradicted by the respond-
ing party without the court’s permission to withdraw or
amend them. E.g., United States v. Kasuboski, 834 F.2d 1345,
1350 (7th Cir. 1987) (“Unless the party securing an admission
can depend on its binding effect, he [or she] cannot safely
12                                        Nos. 16-3893 & 17-1045

avoid the expense of preparing to prove the very matters on
which he [or she] has secured the admission, and the purpose
of the rule is defeated.”), quoting 1970 Fed. R. Civ. P. 36 advi-
sory committee note; Airco Industrial Gases, Inc. v. Teamsters,
850 F.2d 1028, 1037 (3d Cir. 1988) (reversing district court’s
failure to give Rule 36 admission binding effect; “This admis-
sion is not merely another layer of evidence, upon which the
district court can superimpose its own assessment of weight
and validity. It is, to the contrary, an unassailable statement of
fact that narrows the triable issues in the case.”); Williams v.
City of Dothan, 818 F.2d 755, 762 (11th Cir. 1987) (reversing dis-
trict court’s refusal to recognize Rule 36 admission); Brook Vil-
lage North Associates v. General Electric Co., 686 F.2d 66 (1st Cir.
1982) (reversing district judge’s decision to permit evidence
contradicting Rule 36 admissions); see generally 8B Wright &
Miller, Federal Practice and Procedure § 2264 (3d ed. 2010).
     Under the correct Rule 36(b) standard, allowing with-
drawal or amendment in this case would have been an abuse
of discretion. Defendant Glatt had been relying on the Rule 36
admissions for two years. Plaintiffs waited until at least the
eve of trial to try to avoid their admissions (though without
filing a Rule 36(b) motion admitting what they were doing).
The correct standard here should have required a showing of
“manifest injustice” consistent with Rule 16(e). That certainly
was not shown in light of plaintiffs’ gamesmanship regarding
the admissions.
   In a mistaken effort to minimize the prejudice to Glatt, the
majority writes: “And two months after Tate had submitted its
very limited admissions, it supplemented them by presenting
evidence that no fewer than 16 filters installed in the Granu-
Nos. 16-3893 & 17-1045                                         13

lator before the fire had been damaged.” Ante at 5. The ma-
jority is referring to plaintiffs’ mere production of one email
as part of a much larger document production, without com-
ment or explanation. That is not a fair basis for excusing plain-
tiffs’ or the court’s error. Merely producing an unexplained
document does not signal to the requesting party that the ad-
mitting party intends to withdraw or amend its admissions.
That’s why Rule 36(b) requires a motion, to give fair notice of
an intent to change positions from the formal admission.
    No trial is perfect, and I do not vote lightly to retry a case
like this. But this was not a minor technical error. Glatt was
entitled to rely on the Rule 36 admissions. It was prejudiced
at trial by the trial court’s use of the wrong legal standard to
nullify those admissions at trial. By treating the trial court’s
error in this case as a “technical error,” the majority fails to
grasp the unfair advantage that plaintiffs gained by these tac-
tics. By tolerating these tactics, the majority opinion will
muddy the waters unnecessarily in this branch of federal civil
practice. And by undermining justified reliance on Rule 36
admissions, the majority opinion is also likely to reduce the
benefits of using Rule 36, which will tend to raise the costs of
civil litigation. For these reasons, I hope trial judges in this
circuit and beyond will respond to this odd outlier of a deci-
sion by resisting any temptation to follow the shortcuts toler-
ated in this case and by turning square corners in applying
Rule 36(b). I respectfully dissent.
14                                      Nos. 16-3893 & 17-1045

                             APPENDIX
Plaintiff Tate & Lyle Americas LLC Response to Defendant Glatt
Air Techniques Inc.’s Request to Admit. Separate Appendix for De-
fendant-Appellant at 128–29.

7. After the August 2009 filter repairs to the Granulator were
completed to the time of the September 17, 2009 tire, you did
not observe any cracked, chipped, or poorly fitting filters in
the Granulator.
    RESPONSE: It denies the allegations in Paragraph 7. T&L
is not aware of any filter repairs performed. If this Request
was intended to ask about complaints after the granulator fil-
ter housing repair efforts were made, it is admitted T&L is not
presently aware of anyone that observed cracked, chipped, or
poorly fitting filters in the Granulator following work per-
formed by Dynacoil in August or September of 2009. Answer-
ing further, Reinard Ortloff advised David O’Connor, William
Wenrich, Paul Buser, Steve Sirabian, Ulrich Walter, on July 30,
2009, that it was possible some filter elements had stress on
the support in the GFG and if that was the case there was a
high risk that new filter elements would break again. If this
Request was intended to ask about observations of cracked,
chipped or poorly fitting filters, after the granulator filter
housing repair efforts were made, it is admitted it is not cur-
rently aware of any such observations.

8. After the August 2009 filter repairs to the Granulator were
completed to the time of the September 17, 2009 fire, no one
informed you that one or more of the Granulator filters o[r]
filter housings were cracked, chipped, or poorly fitting.
Nos. 16-3893 & 17-1045                                        15

     RESPONSE: It denies the allegations in Paragraph 8. T&L
is not aware of any filter repairs performed. T&L is not pres-
ently aware of anyone that observed cracked, chipped, or
poorly fitting filters in the Granulator following work per-
formed by Dynacoil in August or September of 2009. Answer-
ing further, Reinard Ortloff advised David O’Connor, William
Wenrich, Paul Buser, Steve Sirabian, Ulrich Walter, on July 30,
2009, that it was possible some filter elements had stress on
the support in the GFG and if that was the case there was a
high risk that new filter elements would break again. The fil-
ters provided with the Granulator, even if not cracked,
chipped or poorly fitting, had exposed metal in the frame. If
this Request was intended to ask about information given of
cracked, chipped or poorly fitting filters, after the granulator
filter housing repair efforts were made, it is admitted it is not
currently aware of any such information given.

9. You have not discovered any evidence that one or more of
the Granulator filters or filter housings [w]as cracked,
chipped or poorly fitting at the time the September 17, 2009
fire started.
     RESPONSE: It admits the allegations in Paragraph 9 as it
pertains to cracked or chipped filters or housing. T&L has not
discovered direct evidence that one or more of the Granulator
filters or filter housings was cracked or chipped at the time
the fire started. For further answer, Reinard Ortloff advised
David O’Connor, William Wenrich, Paul Buser, Steve Sira-
bian, Ulrich Walter, on July 30, 2009, that it was possible some
filter elements had stress on the support in the GFG and if that
16                                       Nos. 16-3893 & 17-1045

was the case there was a high risk that new filter elements
would break again. Answering further, and denying the alle-
gations as it relates to poorly fitting filters and filter housing,
following the fire, additional work needed to be done to the
filter housing because filters were poorly fitting which would
suggest the filter housing and filters remained poorly fitting
even at the time of the fire.