Court Opinion

ID: 9915224
Source: CourtListenerOpinion
Date Created: 2024-01-04 21:01:11.531433+00
Date Added: 2024-06-11T13:18:34.526948
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                                File Name: 24a0005n.06

                                           No. 23-3239

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                      FILED
                                                                                    Jan 04, 2024
                                                             )
 ATSCO HOLDINGS CORPORATION; HY-TECH                                       KELLY L. STEPHENS, Clerk
                                                             )
 MACHINE, INC.,
                                                             )
        Plaintiffs - Counter Defendants – Appellants,        )   ON APPEAL FROM THE UNITED
                                                             )   STATES DISTRICT COURT FOR
        v.                                                   )   THE NORTHERN DISTRICT OF
                                                             )   OHIO
 AIR TOOL SERVICE COMPANY, nka X5432, Inc.;                  )
 RICK J. SABATH,                                             )                              OPINION
        Defendants - Counter Claimants – Appellees.          )
                                                             )

Before: SUTTON, Chief Judge; KETHLEDGE and STRANCH, Circuit Judges.

       JANE B. STRANCH, Circuit Judge. The single issue in this appeal is whether the

district court erred by refusing to consider some of the evidence introduced by plaintiff ATSCO

Holdings Corporation (ATSCO) in a trial held at the beginning of the COVID-19 pandemic. For

the reasons stated below, we AFFIRM the decision of the district court.

                                     I.   BACKGROUND

       This case returns from our remand issued on December 31, 2019, reversing the district

court’s award of summary judgment to Air Tool Service Company (Air Tool) and remanding the

matter for trial on the merits. ATSCO Holding Corp. v. Air Tool Serv. Co., 799 F. App’x 310, 313

(6th Cir. 2019). On remand, the remaining claims before the district court—a breach of contract

claim for failure to provide a working capital adjustment, and a breach of contract claim for failure

of an Okuma MacTurn machine to comply with warranties and the representations made in the
No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

asset purchase agreement—were heard at a bench trial. Both claims required proof of damages to

establish a breach of contract under Ohio law.

       Soon after the trial court reopened the case, the COVID-19 pandemic hit. Given the

subsequent limitations on in-person trials, the parties and district court determined a method for

introducing evidence, which the court entered as a Stipulated and Agreed Order (hereinafter,

“Stipulated Order”) on October 13, 2020. The procedure specified by the court for trial testimony

was, in pertinent part, as follows:

       4. Each party shall be responsible to provide those exhibits that party wishes to
       utilize to the court reporter, marked as appropriate, in advance of the scheduled
       testimony.

       5. Objections during trial testimony will be brief, not speaking objections. In the
       event a questioning party is unclear as to the basis of any objection, inquiry may be
       made as to the basis for the objection, and a short response provided, so as to allow
       a questioning party to seek to cure any defect in the question, as the questioning
       party deems appropriate.

       6. At the conclusion of the recording of Plaintiffs’ scheduled witnesses, Plaintiffs
       shall cause the video recordings and the transcripts to be filed with this Court for
       review, and to be made the record of the testimony in this case.

       7. Thereafter, the parties will confer as to the exhibits identified in the Plaintiffs’
       Trial Brief to ascertain which will be admitted without objection, and which will
       require a hearing with Court as to admissibility.

       8. Following admission of Plaintiffs’ exhibits, whether by stipulation, or ruling,
       Plaintiff will be deemed to have rested its case in chief.

       9. The parties hereby stipulate to the authenticity of the exhibits listed by both
       parties in their respective Trial Briefs, obviating the need of testimony from the
       custodian of records, but preserving all other objections.

R.121, Stipulated Order, at 1242-43 (emphases added).           With these directions, the parties

proceeded to take testimony through “Zoom, Skype or a similar system.” Id. at 1242.

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

           While taking remote testimonies, the parties verbally moved to admit exhibits. In the

deposition of Jim Aloi, a former employee of Plaintiff Hy-Tech Machine, Inc., Air Tool and

ATSCO “STIPULATED AND AGREED [that] all objections, except as to the form of the

question, shall be reserved to the time of trial.” R.127, Aloi Transcript, at 1299. For each of the

four exhibits at issue in this appeal, Air Tool verbally reserved its objections on the record for

ATSCO’s eventual motion to admit. ATSCO later mailed the transcripts from these depositions,

along with other materials, on thumb drives to the trial court and to opposing counsel.1 ATSCO

did not itself file any depositions or exhibits with the trial court; Air Tool filed three of ATSCO’s

deposition testimonies and corresponding exhibits.

           The parties attended an in-person hearing on August 22, 2022. At this hearing, the court

considered arguments and testimony for “the two remaining issues . . . the working capital

adjustment and the alleged problems surrounding the MacTurn CNC machine.” R.141, Hearing

Transcript, at 5161. At the close of the hearing, Air Tool moved to admit ATSCO’s exhibits 16,

17, 18, 19, 21, and 22 into evidence. ATSCO had “[n]o objections.” Id. at 5313. The district

court ruled that the exhibits moved by Air Tool were admitted. ATSCO was asked if it had

“anything further,” and it responded, “No. Thank you, Your Honor.” Id. at 5314. ATSCO did

not move to admit its exhibits, and never obtained a ruling as to its exhibits that had not been

admitted on Air Tool’s motion.

           In its Final Opinion, the district court granted “judgment for [Air Tool] on [ATSCO’s]

remaining claims.” R.144, Final Order, at5376. The court found that ATSCO failed to establish

damages under either of its breach of contract claims, and so failed to prove that Air Tool breached

1
    This is not reflected in the ECF docket.

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

its agreement under Ohio law. The court held that ATSCO failed to obtain a ruling on the

admissibility of four exhibits, explaining its decision to exclude those exhibits as follows:

                First, moving to admit exhibits into evidence is “Trial Procedure 101” and has
        been a bedrock requirement for any proponent seeking to first have the Court review
        for conformance with the Rules of Evidence and, if passing muster, have the trier of
        fact give whatever credence the evidence deserves.
                Second, the parties’ own “Stipulation and Agreed Order” and the Court’s Trial
        Order hammer this requirement home and bar any argument to the contrary.
                Third, the Court was never given the opportunity to rule on the admissibility of
        Plaintiffs’ exhibits to determine issues such as relevance, reliability and speculative
        damages.
                Defendants objected to Plaintiffs’ exhibits during trial deposition, yet Plaintiffs
        failed to bring the same before the Court for a ruling as required and explained above.
                Defendants have no burden nor obligation to do Plaintiffs’ job of placing the
        exhibits before the Court for a ruling. Defendants did move into evidence at trial some
        of Plaintiffs’ exhibits, following the agreed upon procedure and the Court’s Trial Order,
        which the Court has properly considered.
                Turning to whether Defendants would be prejudiced by allowing Plaintiffs’
        exhibits into evidence, there is a substantial monetary amount Defendants would pay if
        the Court considered the barred exhibits credible.
                Defendants should not be financially punished for Plaintiffs’ breach of their
        own agreement, failure to adhere to the Court’s Trial Order and failure to adhere to one
        of the most basic principles of trial; presenting objected-to evidence to the Court for an
        admissibility ruling, prior to any consideration by the Court as trier of fact in this case.

R.144 at 5373-74, n.4. The excluded exhibits were PX 14, PX 15, PX 27, and PX 32. The effects

of the district court’s exclusion differed for each piece of evidence and corresponding claim, but

no exhibit was excluded solely because ATSCO failed to move it into evidence.

        The trial court did not consider these exhibits, nor did it consider the evidence mailed to

the court on the two thumb drives. The thumb drive evidence and exhibits are outlined below.2

2
 In its brief to this court, ATSCO does not raise arguments based on specific exhibits. We rely on the court’s Final
Order in addressing this evidence.

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

       A.      The Evidence at Issue

       For evidence to be considered by the court, the Stipulated Order required it to be 1) filed

with the court, then 2) admitted as evidence (either by stipulation or by a court ruling on a motion

to admit). The trial court found that ATSCO violated the Stipulated Order in several ways: first,

it did not properly file evidence, including the thumb drive evidence; second, it failed to obtain a

stipulation or a ruling on evidence that—although filed by Air Tool—was never ultimately

admitted. This is reflected in the court’s electronic filing system, in which the only deposition

transcripts and exhibits available for review were those filed by Air Tool, including “the deposition

testimony of Joseph Molino, James Aloi and Patrick Curry,” and corresponding exhibits (e.g., PX

14, PX 15, PX 27, and PX 32).

       We first address the unfiled thumb drive evidence, before turning to excluded exhibits PX

14, PX 15, PX 27, and PX 32, which were filed by Air Tool with corresponding deposition

transcripts, but which were never admitted into evidence by a ruling or stipulation.

               1.      Unfiled Thumb Drive Evidence

       ATSCO does not make the thumb drive evidence part of its record on appeal, and that

evidence is not specified in the trial record. Our discussion of this evidence is therefore limited to

the trial court’s statements and ATSCO’s references to the evidence in its trial brief.

       As the district court notes in its Final Opinion, ATSCO failed to properly file some of its

materials with the court by not e-filing them, instead sending them via thumb drive to the court

and opposing counsel. On May 8, 2020, the trial court had stated in an initial scheduling order

that “[t]here is no need to file the exhibits with the Clerk of Courts.” R.112, Scheduling Order, at

1170. However, in its October 13, 2020 Stipulated Order, the court memorialized the agreement

of the parties that “[a]t the conclusion of the recording of Plaintiffs’ scheduled witnesses, Plaintiff

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

shall cause the video recordings and the transcripts to be filed with this Court for review, and to

be made the record of the testimony in this case.” R.121 at 1243.

       Regarding this thumb drive evidence, the district court noted ATSCO’s claim that “they

are entitled to $100,928 for the purchase price adjustment,” and that “Plaintiffs’ Trial Brief asserts

that witnesses Joe Molino, Patrick [Curry], James Aloi and Robert Ober would testify on this issue

and that Exhibits PX 1-5, PX 13, and PX 22-25 support their claim.” R. 144 at 5357. Although

the depositions of Molino, Curry, and Aloi were filed with the court by Air Tool, Ober’s testimony

was not; neither were most of the exhibits named in ATSCO’s trial brief. R.166, Trial Brief, at

1200. According to the trial brief, these exhibits supported ATSCO’s working capital adjustment.

None of the three filed deposition transcripts—Aloi, Curry, and Molino—however, contained any

reference to the unfiled thumb drive evidence described by the district court.

       The court’s Final Opinion concluded that ATSCO’s “failure to comply with their own

stipulation means anything not filed with the Court is not part of the record.” R.144 at 5358. After

receiving the Final Opinion, ATSCO did not file a motion with the trial court to correct the record;

nor did it file the thumb drive evidence with this court on appeal.

               2.      The Four Excluded Exhibits

                       a.      MacTurn Claim Exhibit: PX 14

       PX 14 is “a spreadsheet with supporting invoices showing the repairs needed and expended

on the MacTurn.” R.144 at 5365. In Aloi’s deposition, ATSCO verbally moved to admit PX 14

regarding damages on its MacTurn claim. Air Tool filed PX 14 with that deposition. However,

neither party either stipulated or moved to admit PX 14 before the court, and the court never ruled

on its admission. Specifically, the court found,

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

       Plaintiffs’ damages calculations and invoices on the MacTurn were never admitted
       into evidence. Moreover, the evidence presented does not provide a method absent
       those excluded exhibits for the Court to derive a damages figure.

       ...

       Even if it were considered by the Court, Plaintiffs’ Exhibit 14 lists $29,599.69 in
       MacTurn related expenses that are not compensable as they relate solely to the costs
       incurred for moving the MacTurn machine to Pennsylvania and storing the same
       and are unrelated to repairs incurred.

R.144 at 5366, 5372. So, the trial court did not rely on PX 14 for two reasons: because its

information was irrelevant, as it contained unrelated costs; and because ATSCO failed to finalize

its admission into evidence. The court also held that ATSCO’s MacTurn claim failed because

although ATSCO provided evidence of the MacTurn’s maintenance, it “failed to prove by a

preponderance of the evidence that the MacTurn machine was not reasonably maintained,” a

subject to which PX 14 was not relevant. R.144 at 5376.

                      b.     Okuma LT200 Replacement Sub-Issue Exhibit: PX 15

       PX 15 is comprised of a series of invoices related to ATSCO’s allegation that “a second

Okuma, an LT200 machine, was part of the APA sale but Defendants sold the machine prior to

closing.” R.144 at 5366. ATSCO sought damages for this loss under its MacTurn claim, and

according to PX 15, the second machine replacement cost $370,757.65. But ATSCO’s expert,

who reviewed PX 15, testified to a different amount: $330,000.

       When ATSCO verbally moved to admit exhibit PX 15 during the deposition, it told Air

Tool’s counsel, “I won’t make you say that you reserve your objection. I assume that’s the case.”

R.127 at 1307. Air Tool’s counsel responded, “I do.” Id. Regardless, the issue surrounding PX

15 was moot because, as the trial court found (and other evidence demonstrated), “both sides

acknowledge[d] [the Okuma LT200] was not to be part of the sale.” R.144 at 5367. The district

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

court therefore determined that ATSCO could not have succeeded in obtaining these additional

damages even if PX 15 was properly in the record evidence.

                          c.       Working Capital Claim Exhibits: PX 27 and PX 32

        ATSCO sought to admit PX 27 and PX 323 as exhibits to prove damages under its working

capital adjustment claim. PX 27 showed ATSCO’s roll back inventory, which related to the

working capital adjustment claim damages. When introducing this exhibit, ATSCO stated, “I

know [Air Tool] reserves [its] objections.” R.129 at 1736. PX 32 was a balance sheet that stated

it came “to a calculation with respect to a working capital adjustment.” Id. Air Tool also reserved

its objections to PX 32 for ATSCO’s eventual motion to admit.

        Because ATSCO “failed to move into evidence PX-32 and PX-27, which provide the only

evidence of a damages calculation,” the district court “[found for Air Tool] on [ATSCO’s] working

capital adjustment claim.” R.144 at 5364. The court further found that ATSCO’s evidence, even

if considered, “presented a moving target as to the inventory rollback ultimately abandoning any

claims related to the inventory acknowledgment letter.” The court stated that aside from ATSCO’s

failure to comply with the agreed rules for evidence admission, this evidence supporting

“inventory roll back was not reliable, did not account for inventory removed by Plaintiffs, work in

process, work being performed by third party vendors and was not performed in accordance with

the past practices of Defendants.” Id. at 5375. With respect to PX 32 specifically, the district

court stated that the exhibit “contains an inventory adjustment which the Court finds was so

fundamentally flawed that it cannot be relied upon.” Id. at 5361. Finally, it found that the evidence

offered “on the working capital adjustment bears no relation to the inventory issues raised in

3
  As a technical point, ATSCO never actually moved to admit PX 32, even in its depositions (unlike the three other
exhibits at issue). We assume the motion, however, because upon introducing the document, Air Tool stated that it
reserved its objections.

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

Plaintiffs’ Amended Complaint.” Id. at 5364. Accordingly, the court held that given the flaws in

PX 27 and PX 32 (even aside from ATSCO’s failure to seek admission properly), ATSCO

introduced no reliable evidence demonstrating working capital damages.

                                        II.   ANALYSIS

       The issue before this court is whether the district court erred when it decided not to consider

thumb drive evidence and exhibits read into the record but not moved for admittance and ruled on

by the district court. “A party may claim error in a ruling to admit or exclude evidence only if the

error affects a substantial right of the party[.]” Fed. R. Evid. 103(a). Federal Rule of Evidence

611(a) states, “[t]he court should exercise reasonable control over the mode and order of examining

witnesses and presenting evidence so as to . . . make those procedures effective for determining

the truth[.]” This rule provides broad discretion to the trial court for evidentiary procedures. See

Cummins v. BIC USA, Inc., 727 F.3d 506, 510 (6th Cir. 2013). “The manner in which the evidence

is to be presented is necessarily in the discretion of the trial judge.” United States v. Daniels, 528

F.2d 705, 709 (6th Cir. 1976) (citing United States v. Wade, 364 F.2d 931, 936 (6th Cir. 1966));

see also United States v. Vinson, 606 F.2d 149, 152 (6th Cir. 1979) (“A trial judge must have

considerable discretion in controlling the mode and order of proof at trial[.]”).

       In addition to the history showing that the rules of evidence and common law provide a

district court with evidentiary discretion, “this Court has long recognized that a district court

possesses inherent powers that are ‘governed not by rule or statute but by the control necessarily

vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition

of cases.’” Dietz v. Bouldin, 579 U.S. 40, 45 (2016) (quoting Link v. Wabash R.R. Co., 370 U.S.

626, 630-31, (1962)). Those inherent and “implied powers must necessarily result to our Courts

of justice from the nature of their institution,” such as “[e]nforc[ing] the observance” of their

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

orders. United States v. Hudson & Goodwin, 11 U.S. 32, 32-34 (1812). We turn to ATSCO’s

evidentiary challenges.

       A.        Thumb Drive Evidence

       Federal Rule of Civil Procedure 5(d)(3)(A) requires all filings by a represented party to be

made electronically unless excepted by a court’s finding of good cause or local rule. The Federal

Rules “govern the procedure in all civil actions and proceedings in the United States district courts

. . . . They should be construed, administered, and employed by the court and the parties to secure

the just, speedy, and inexpensive determination of every action and proceeding.” Fed. R. Civ. P.

1. Under Federal Rule of Appellate Procedure (FRAP) 10(e)(2),

       If anything material to either party is omitted from or misstated in the record by
       error or accident, the omission or misstatement may be corrected and a
       supplemental record may be certified and forwarded:
               (A) on stipulation of the parties;
               (B) by the district court before or after the record has been forwarded; or
               (C) by the court of appeals.

       The district court’s Stipulated Order—entered prior to the parties’ discovery—required that

exhibits and deposition transcripts be filed with the court. So, that Order superseded any prior

orders, and the parties were required to file evidence with the Court electronically under the

Federal Rules.

       Both its inherent powers and the Federal Rules entitled the district court to “[e]nforce the

observance of [its order]” requiring that all parties file evidence with the court. See Hudson &

Goodwin, 11 U.S. at 32. By failing to electronically file, as required by the Rules and noted by

the court’s Stipulated Order, ATSCO violated the district court’s trial requirements and the Rules.

See Schafer v. City of Defiance Police Dep’t, 529 F.3d 731, 735-36, 740 (6th Cir. 2008) (holding

that where a party failed to electronically file motions to the district court “in violation of prior

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

court orders,” the court did not abuse its discretion in dismissing the complaint without prejudice,

id. at 735). Because ATSCO did not properly place the thumb drive evidence in the record and

failed to certify it to this court under FRAP 10(e)(2), moreover, we are unable to properly review

the district court’s decision not to consider it. Under these circumstances, the district court did not

abuse its discretion by refusing to consider the thumb drive evidence not made part of the trial

record.

          B.     The Four Excluded Exhibits

          As a result of the COVID-19 pandemic, district courts have relied on their inherent powers

and broad discretion for administering trials to conduct the business of the courts safely and

efficiently. Trials held under emergency protocols, such as the one in this case, are now trickling

up to courts of appeal. For example, in Outlaw v. Plantation Pipe Line Co., No. 21-11787, 2022

WL 2904084 (11th Cir. July 22, 2022), the Eleventh Circuit considered whether parties who failed

to abide by their agreed-upon and ordered discovery plan, made in light of the emergent pandemic,

were nevertheless entitled to reopen discovery after failing to produce any evidence by the ordered

deadline, citing the pandemic as good cause for permitting further discovery. Id. at *2-4. The

district court held that they were not so entitled. Id. On appeal, the Eleventh Circuit held that the

trial court did not abuse its discretion “by denying what amounted to a discovery extension request

three months after the close of discovery.” Id. at *5.

          While not binding on this court, Outlaw provides a helpful comparison for the case at bar.

Just as in Outlaw, ATSCO failed to adhere to an agreed-upon discovery plan for developing the

trial record that the parties had stipulated to and that was ordered by the district court. Here, the

plan included explicit procedures requiring the parties to either stipulate to or obtain a ruling on

the admissibility of evidence. ATSCO failed to abide by the language of the Stipulated Order

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

requiring exhibits to be admitted without objection or following a hearing and court ruling after

the witness depositions. Under the governing stipulation, any “moving” for admission done during

the depositions is insufficient on its own for the purposes of trial. As in Outlaw, ATSCO’s failure

to abide by the discovery order is not excused by the pandemic, especially because both plans were

constructed in light of the pandemic.

       The district court’s use of discretion here was arguably even more justified than in Outlaw.

In addition to the stipulated order, ATSCO and Air Tool also stipulated as a condition of at least

one deposition that “all objections, except as to the form of the question, shall be reserved to the

time of trial.” R.127 at 1299. Air Tool reserved its objections for ATSCO’s future trial motions

to admit each of the four exhibits at issue here, relying on the Stipulated Order and ATSCO’s

statements in depositions that Air Tool would have an opportunity to argue its objections to the

trial court when ATSCO moved for admission of the exhibits. ATSCO’s request that the court

ignore its stipulated evidentiary procedures on the four exhibits would have prejudiced Air Tool

by depriving it of the agreed opportunity to fully object to exhibits (whose reliability and relevance

the trial court independently called into question). In addition, ATSCO was present when Air Tool

moved for some, but not all, of ATSCO’s exhibits to be admitted as evidence. The hearing

provided ATSCO the opportunity to move to admit its remaining exhibits. ATSCO failed to do

so.

       Despite ATSCO’s argument, the district court’s Final Opinion was not based on mere

technicalities. The court provided specific justifications for each exclusion and related claim

beyond ATSCO’s failure to properly admit the evidence on the record. The district court explained

how ATSCO’s claims would fail even if ATSCO had properly moved to admit the evidence. The

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No. 23-3239, ATSCO Holdings Corp., et al. v. Air Tool Serv. Co., et al.

district court’s thorough justifications show that it did not abuse its “considerable discretion” when

it refused to consider PX 14, PX 15, PX 27, and PX 32. Vinson, 606 F.2d at 152.

       ATSCO was not prejudiced by the court’s use of its “inherent powers . . . to manage [its]

own affairs so as to achieve the orderly and expeditious disposition of [the case]” by “[e]nforc[ing]

the observance of” its Stipulated Order; nor did the district court abuse its discretion by not

considering the evidence described herein. Dietz, 579 U.S. at 45 (quotations omitted); Hudson &

Goodwin, 11 U.S. at 34

                                    III.   CONCLUSION

       “We are reluctant to base our decision on a defective record and, before arriving at this

conclusion, have carefully studied it in order to avoid an injustice, but viewing the factual matters

presented to us,” the district court properly exercised its discretion below. Drybrough v. Ware,

111 F.2d 548, 551 (6th Cir. 1940). In summary, ATSCO’s substantial rights were not harmed by

the district court’s exercise of discretion over how evidence is admitted, nor by its decision to

enforce the parties’ stipulation that it had approved and entered as a Stipulated Order. See Fed. R.

Evid. 103(a); c.f. Daniels, 528 F.2d at 709. Accordingly, we AFFIRM.

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