Court Opinion

ID: 3064598
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:25:51.422922+00
Date Added: 2024-06-11T11:41:23.186619
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

BILL MILLENKAMP; SUSIE                
MILLENKAMP, husband and wife,
dba Millenkamp Cattle,
              Plaintiffs-Appellees,
                                            No. 07-35299
               v.
DAVISCO FOODS INTERNATIONAL,                 D.C. No.
                                          CV-03-0439-S-EJL
INC.,
             Defendant-Appellant,
              and
CARGILL INCORPORATED,
                        Defendant.
                                      

BILL MILLENKAMP; SUSIE                
MILLENKAMP, husband and wife,
dba Millenkamp Cattle,
             Plaintiffs-Appellants,
                                           No. 07-35318
               v.
DAVISCO FOODS INTERNATIONAL,                D.C. No.
                                          CV-03-00439-EJL
INC.,
              Defendant-Appellee,            OPINION
              and
CARGILL INCORPORATED,
                        Defendant.
                                      
       Appeal from the United States District Court
                 for the District of Idaho
        Edward J. Lodge, District Judge, Presiding

                           4289
4290             MILLENKAMP v. DAVISCO FOODS
                  Argued and Submitted
            September 15, 2008—Moscow, Idaho

                     Filed April 14, 2009

       Before: J. Clifford Wallace, Stephen S. Trott and
               N. Randy Smith, Circuit Judges.

                Opinion by Judge N.R. Smith
4294           MILLENKAMP v. DAVISCO FOODS

                      COUNSEL

Kenneth R. White, MacKenzie & Gustafson. Ltd., St. Peter,
MN, and Tom Lopez and Lou Piccioni, Lopez & Kelly,
P.L.L.C., Boise, Idaho, for the defendants-appellants.

Tom Arkoosh and David Heida, Arkoosh Law Offices, Chtd.,
Gooding, Idaho, for the plaintiffs-appellees.
                 MILLENKAMP v. DAVISCO FOODS               4295
                          OPINION

N.R. SMITH, Circuit Judge:

   Davisco Foods International, Inc. (“Davisco”) here appeals
from (1) the district court judgment that it breached express
and implied warranties to Bill and Susie Millenkamp (the
“Millenkamps”) and (2) the district court’s denial of post-trial
motions that would relieve Davisco of the judgment. We con-
clude that the district court erred in admitting evidence and
giving jury instructions concerning Idaho milk permeate
labeling laws and also abused its discretion in admitting
Exhibits 18 and 25. These acts prejudiced Davisco. The dis-
trict judge should have granted Davisco’s motion for a new
trial. Accordingly, we reverse the district court’s denial of
Davisco’s motion for a new trial and remand the case to the
district court for proceedings consistent with this opinion.
Because the district court must conduct a new trial, the par-
ties’ arguments concerning offsets for damages, attorneys’
fees, and prejudgment interest are moot.

               Facts and Procedural History

   The Millenkamps raise bovine calves in Idaho. Davisco
operates the “Jerome Cheese Company,” which produces milk
permeate as a byproduct of its cheese-making operation.
Because milk permeate is sometimes used as a source of
dietary energy, protein, and minerals in livestock feeding pro-
grams, Davisco sells milk permeate to several dairies near
Jerome, Idaho.

   Given the use of milk permeate in other feeding programs,
the Millenkamps decided to investigate using it as part of their
calf feeding operation. They discussed its use in their opera-
tion with Davisco employee, Steven Ewing. Ewing admits
that he provided the Millenkamps an analysis sheet that set
forth the contents of Davisco’s milk permeate and represented
that it had a pH level of at least 6. The Millenkamps also
4296                MILLENKAMP v. DAVISCO FOODS
assert that Ewing told them that (1) he “thought” the milk per-
meate “would be good to feed” the calves; and (2) it should
be stored in plastic tanks similar to tanks Ewing observed
while touring the Millenkamps’ facilities. The Millenkamps
then consulted nutritionist Matt Schmitt of Cargill, Inc. After
such investigation, the Millenkamps purchased milk permeate
from Davisco, stored it in plastic tanks, and, beginning on
May 25, 2002, incorporated it into the feed for their calves.

   Within days, Bill Millenkamp noticed that several calves
became sick, so he stopped feeding them milk permeate. Soon
thereafter, many of the Millenkamps’ calves died or failed to
gain weight at a desirable rate. On June 3 and 4, 2002, the
Millenkamps’ veterinarian, Dr. Michael Mihlfried, conducted
necropsies on three dead calves. He concluded that two of
them died from rumen acidosis and the third died from a dis-
ease to which acidosis can predispose calves. Mihlfried pos-
ited that the Millenkamps stored the milk permeate at an
improper temperature, which allowed lactose to ferment into
a harmful lactic acid that caused the calves to fall prey to
rumen acidosis.

   In October 2004, the Millenkamps filed a Complaint
against Davisco alleging breach of express warranties, breach
of the implied warranty of fitness for a particular purpose,
general negligence, and negligence per se.1 The Millenkamps
moved for summary judgment on the negligence per se claim;
Davisco moved for summary judgment on all negligence
claims. The district court granted summary judgment to
Davisco, concluding that the Idaho economic loss rule barred
recovery in negligence, even though Davisco may have been
negligent per se.

   The Millenkamps and Davisco proceeded to trial on the
  1
    The Millenkamps also asserted a general negligence claim against Car-
gill, Inc., which Cargill settled. Accordingly, Cargill is not a party to this
appeal.
                 MILLENKAMP v. DAVISCO FOODS                 4297
Millenkamps’ claims for breach of express warranty and
breach of implied warranty of fitness for a particular purpose.
The jury awarded damages to the Millenkamps, finding that
Davisco breached those warranties. Davisco subsequently
moved for judgment as a matter of law or, in the alternative,
a new trial, renewing its in-trial objections to several evidenti-
ary rulings, the jury instructions, and the sufficiency of the
evidence. Davisco also asserted that Idaho law required the
district court to offset the jury’s damages award by the
amount of the Cargill settlement. The district court denied
Davisco’s motions and the offset.

   The Millenkamps subsequently filed a motion requesting
prejudgment interest, costs and attorneys’ fees. The district
court denied the Millenkamps’ request for prejudgment inter-
est, but awarded attorneys’ fees. Both parties timely appealed.

                            Analysis

   Davisco argues that the district court (A) mishandled the
issue of Cargill’s involvement by failing to give the jury
instructions regarding (1) Cargill’s comparative negligence
and (2) the Millenkamps’ potential responsibility for Cargill’s
acts under an agency theory. Davisco argues that the district
court (B) should not have allowed evidence or instructed the
jury concerning Idaho’s statutory requirement to label milk
permeate for safe use. Davisco argues that (C) the district
court (1) made several erroneous evidentiary rulings by
improperly admitting (a) Dr. Alois Kertz’s expert testimony,
(b) Exhibit 25, a letter from Davisco responding to the Mil-
lenkamps’ settlement request, and (c) Exhibit 18, a letter from
Cargill’s nutritionist to the Millenkamps, and (2) erred by (a)
rejecting Davisco’s proposed spoliation of evidence jury
instruction and (b) failing to give the jury a “Time of Deliv-
ery” jury instruction regarding the Millenkamps’ breach of
warranty theories. Davisco argues that (D) the district court
erred by failing to offset the jury’s damages award by the
amount of the Cargill settlement. Finally, Davisco challenges
4298             MILLENKAMP v. DAVISCO FOODS
the district court’s award of attorneys’ fees to the Mil-
lenkamps. The Millenkamps cross appeal the district court’s
decision not to award them prejudgment interest.

                               A

   Davisco argues that the district court erred by (1) ruling
that Idaho law did not require instructions regarding Cargill’s
comparative negligence and (2) failing to instruct the jury that
the Millenkamps were responsible for Cargill’s acts under
Idaho agency theory, therefore allowing the jury to compare
the Millenkamps’ actions to Davisco’s in determining
whether Davisco breached the contract. We review these
arguments de novo, because Davisco challenges the district
court’s interpretation of Idaho law while instructing the jury.
See Fireman’s Fund Ins. Co. v. Alaskan Pride P’ship, 106
F.3d 1465, 1469 (9th Cir. 1997). We affirm the district court
for the reasons set forth below.

                              (1)

   Based on the evidence that (a) Cargill’s nutritionist
designed the feed mixture that was fed to the calves, and (b)
Bill Millenkamp blamed Cargill for at least some of the
calves’ problems, Davisco argues that the district court (a)
should have instructed the jury regarding Cargill’s compara-
tive negligence, because Cargill was somewhat responsible
for the Millenkamps’ losses and (b) should have allowed the
jury to compare the fault of Cargill and Davisco. The district
court declined a comparative negligence instruction. We
affirm the district court’s decision.

   [1] Davisco was not entitled to a jury instruction regarding
Cargill’s comparative negligence, because negligence is not a
defense to liability for breach of warranty claims in Idaho.
Idaho courts “allow the defenses of misuse of a product or
assumption of the risk to reduce or deny a plaintiff’s recovery
for breach of warranty, but [they] otherwise deny negligence
                 MILLENKAMP v. DAVISCO FOODS               4299
as a defense.” Duff v. Bonner Bldg. Supply, Inc., 666 P.2d
650, 653 (Idaho 1983) (emphasis added). Davisco relies on
Vannoy v. Uniroyal Tire Co., 726 P.2d 648 (Idaho 1985), to
argue that the jury should compare the fault of all parties
whose conduct may have contributed to the Millenkamps’
damages. Davisco’s reliance on Vannoy is misplaced, because
that case involved negligence and strict liability (defective
design and inadequate warnings), therefore tort claims. See
Empire Lumber Co. v. Thermal-Dynamic Towers, Inc., 971
P.2d 1119, 1125 (Idaho 1998) (distinguishing Vannoy and
holding that an affirmative tort-based defense is not a defense
to contractual liability).

   [2] Davisco’s argument that “Idaho law will develop to
require the comparison of fault where a party seeks conse-
quential damages” is also unpersuasive. Davisco supports its
argument by citing cases from other jurisdictions and suggest-
ing that Idaho law will develop similar law. We disagree.
Idaho law does not provide for affirmative tort-based defenses
in cases involving contractual liability. See Empire Lumber
Co., 971 P.2d at 1125. How Idaho law will “develop” to the
contrary in the future is both impossible to determine and
irrelevant to our decision. Accordingly, we affirm the district
court’s refusal to instruct the jury regarding Cargill’s compar-
ative negligence.

                              (2)

   Davisco argues, in the alternative, that (a) the jury should
have been instructed that Cargill was the Millenkamps’ agent,
(b) the Millenkamps were responsible for Cargill’s acts under
agency theory, and (c) the Millenkamps’ actions therefore
should have been compared to Davisco’s actions in determin-
ing whether Davisco breached the agreement. We disagree
with Davisco’s argument for giving the instruction. To the
extent the instruction would assist the jury in determining
Davisco’s liability for breach of contract, it would have been
error to give it.
4300               MILLENKAMP v. DAVISCO FOODS
   [3] A principal is responsible for its agent’s tortious acts,
so long as the agent has acted within the course and scope of
authority delegated by the principal. Bailey v. Ness, 708 P.2d
900, 902 (Idaho 1985). This cause of action, however, is
grounded in breach of contract, not tort. Accordingly, whether
the Millenkamps’ agent—and by extension, the Millenkamps
themselves—was at “fault” has no bearing on whether
Davisco is liable for breach of contract. See Duff, 666 P.2d at
653-54; Empire Lumber Co., 971 P.2d at 1125. Given Idaho
law, the extent to which Cargill and/or the Millenkamps “mis-
used” the milk permeate is only relevant to determine whether
the Millenkamps’ recovery for the breach should be reduced,
potentially down to zero. The district court’s verdict form and
instructions 33 and 34 properly provided Davisco with this
defense. The district court therefore did not err in rejecting
Davisco’s jury instructions regarding the alleged agency rela-
tionship.

                                   B

   Davisco challenges the district court’s (1) instruction to the
jury that it must consider Idaho’s “legal requirement that the
milk permeate contain a label” that includes “directions for
use and precautionary statements” in determining whether
Davisco breached its warranty to the Millenkamps, and (2)
admission of Dr. Kertz’s testimony regarding the develop-
ment of milk permeate labeling requirements. Because
Davisco asserts that the district court misapplied the law of
express and implied warranties2 in instructing the jury, we
review that instruction de novo. See Fireman’s Fund Ins. Co.,
106 F.3d at 1469. An erroneous ruling that affects the sub-
stantial rights of a party is grounds for reversal, unless it affir-
  2
   We only resolve this issue with respect to allegations that Davisco
breached an express warranty and/or an implied warranty of fitness for a
particular purpose. Our analysis does not extend to breach of the implied
warranty of merchantability, because the Millenkamps did not allege that
Davisco breached this warranty.
                 MILLENKAMP v. DAVISCO FOODS                4301
matively appears from the whole record that it was not
prejudicial. McCandless v. United States, 298 U.S. 342, 347-
48 (1936). This is particularly true of an error in jury instruc-
tions. Cancellier v. Federated Dept. Stores, 672 F.2d 1312,
1316 (9th Cir. 1982) (citing Fillippon v. Albion Vein Slate
Co., 250 U.S. 76, 82 (1919)). Accordingly, if the record indi-
cates that Davisco was unfairly prejudiced by the district
court’s instructions, we must reverse and remand the case for
a new trial. We review the evidentiary ruling for an abuse of
discretion. See Tritchler v. County of Lake, 358 F.3d 1150,
1155 (9th Cir. 2004).

                              (1)

    [4] Title 6 of the Idaho Administrative Procedures Act
(“IDAPA”) provides for “Rules Pertaining to the Idaho Com-
mercial Feed Law.” Section 02.06.02.250 of the IDAPA,
titled “Directions for Use and Precautionary Statements,”
requires, inter alia, that all commercial feeds must be labeled
with “[a]dequate directions for use and precautionary state-
ments for safe and effective use.” IDAPA § 02.06.02.250.03
(“Idaho’s Milk Permeate Labeling Requirement”). Violations
of Idaho’s regulatory scheme may result in a “withdrawal
from sale” order, IDAPA § 02.06.02.600 (Detained Commer-
cial Feeds), and civil penalties not to exceed $10,000 per vio-
lation, IDAPA § 02.06.02.900 (Civil Penalties).

   The district court instructed the jury regarding Idaho’s Milk
Permeate Labeling Requirement and its relationship to the
Millenkamps’ breach of warranty claims. In effect, the district
court told the jury that a violation of Idaho’s Milk Permeate
Labeling Requirement is a basis to find breach of an express
warranty and/or the implied warranty of fitness for a particu-
lar purpose. Davisco argues that the district court erred by
instructing the jury that a violation of Idaho’s Milk Permeate
Labeling Requirement is a breach of these warranties.
Davisco is correct.
4302                MILLENKAMP v. DAVISCO FOODS
   [5] Idaho law recognizes that a state statute may, under cer-
tain circumstances, create the basis for tort liability and a pri-
vate cause of action. See Obendorf v. Terra Hug Spray Co.,
Inc., 188 P.3d 834, 840 (Idaho 2008) (“It is well established
that statutes and administrative regulations may define the
applicable standard of care in a negligence action and that
violations of such statutes and regulations may constitute neg-
ligence per se.”). There is no statute or case law, however,
making the violation of a regulatory or safety statute a breach
of the express or implied warranty alleged here.3

   [6] In Duffin v. Idaho Crop Imp. Ass’n, 895 P.2d 1195
(Idaho 1995), the Idaho Supreme Court determined that com-
pliance with regulatory provisions governing potato seed cer-
tification could not be read into a contract without evidence
that compliance was a part of the bargain between the parties.
Id. at 1205. Using the same reasoning, we conclude that the
legal requirement to label milk permeate had no bearing on
the Millenkamps’ breach of express warranty claim, because
there was no evidence of an express warranty by Davisco that
the milk permeate would comply with labeling laws.

   [7] As to the implied warranty of fitness claim, the Mil-
lenkamps argued that Davisco was aware of their intended
purpose to feed permeate to calves after storing it in unrefrig-
erated tanks. They also argue it was unfit for that purpose as
furnished to them. Idaho Code Section 28-2-315 creates an
implied warranty of fitness for a particular purpose and a
cause of action against a seller who fails to furnish goods suit-
able for the intended purpose. However, it does not create a
cause of action against a seller who fails to comply with all
applicable statutory labeling requirements. Evidence of label-
  3
    The implied warranty of merchantability requires a merchant to prop-
erly label the items it sells. Idaho Code § 28 2-314(2)(e). A failure to label
under Idaho’s Milk Permeate Labeling Requirement may result in a breach
of the implied warranty of merchantability, but the Millenkamps did not
allege a breach of this warranty.
                 MILLENKAMP v. DAVISCO FOODS                 4303
ing practices may be relevant to the extent that a label could
render a product suitable for a particular purpose by instruct-
ing an otherwise uninformed buyer as to the product’s proper
use. The legal requirement to label, however, was irrelevant
in these circumstances, because it did not affect Davisco’s
knowledge of the intended use or the fitness of the milk per-
meate as delivered. Accordingly, compliance with Idaho’s
Milk Permeate Labeling Requirement does not address
whether Davisco breached an implied warranty of fitness for
a particular purpose.

   [8] By instructing the jury that Davisco’s failure to label the
milk permeate would cause the breach of an express warranty
or the implied warranty of fitness for a particular purpose, the
district court erroneously applied Idaho law. Because this
instruction allowed the jury to improperly find Davisco liable
for breach of warranties here, Davisco was unfairly preju-
diced by such instructions. See Cancellier, 672 F.2d at 1316.
Accordingly, we reverse the district court with respect to its
jury instruction regarding Idaho’s Milk Permeate Labeling
Requirement. We also remand the case to the district court for
a new trial that should not include any instruction regarding
Idaho’s Milk Permeate Labeling Requirement and is other-
wise consistent with the remainder of this opinion.

                               (2)

   [9] In addition to instructing the jury regarding Idaho’s
Milk Permeate Labeling Requirement, the district court
admitted testimony concerning this same issue from the Mil-
lenkamps’ expert, Dr. Kertz. He testified that the American
Feed Control Officials’ model feed law required sellers to
label milk permeate. Davisco argues that this was an error.
Because this testimony, like the jury instruction regarding
Idaho’s Milk Permeate Labeling Requirement, is (1) not rele-
vant to determine whether Davisco breached the warranties
alleged here and (2) prejudicial to Davisco, we hold that the
district court abused its discretion in admitting it. See
4304             MILLENKAMP v. DAVISCO FOODS
Tritchler, 358 F.3d at 1155; Geurin v. Winston Indus., Inc.,
316 F.3d 879, 882 (9th Cir. 2002).

                               C

   Davisco also argues that the district court (1) made several
erroneous evidentiary rulings by improperly admitting (a) Dr.
Kertz’s expert opinion that the milk permeate likely caused
the calves’ illness; (b) Exhibit 25, a letter from Davisco
responding to the Millenkamps’ settlement request; and (c)
Exhibit 18, a letter from Cargill’s nutritionist to Millenkamp;
and (2) erred by (a) rejecting Davisco’s proposed spoliation
of evidence jury instruction and (b) failing to give the jury a
“Time of Delivery” jury instruction regarding the Mil-
lenkamps’ breach of warranty theories. We affirm the district
court with respect to its decisions to allow Dr. Kertz’s testi-
mony and reject Davisco’s spoliation of evidence and “Time
of Delivery” jury instructions. We reverse the district court
with respect to its admissions of Exhibits 25 and 18.

                              (1)

   Pursuant to the standards set forth by Daubert v. Merrell
Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Federal
Rule of Evidence 702, the district court allowed Dr. Kertz’s
expert opinion that the milk permeate likely caused the
calves’ illness. The district court has discretion whether to
hold a Daubert hearing in determining whether to admit
expert testimony. See In re Hanford Nuclear Reservation Lit.,
292 F.3d 1124, 1138 (9th Cir. 2002). We review the district
court’s decision to admit Dr. Kertz’s testimony for an abuse
of discretion. Clausen v. M/V New Carissa, 339 F.3d 1049,
1055 (9th Cir. 2003) (citing Metabolife Int’l, Inc. v. Wornick,
264 F.3d 832, 839 (9th Cir. 2001)). We may only reverse the
district court, if our review leaves us with “a definite and firm
conviction that the district court committed a clear error of
judgment in admitting that testimony.” Clausen, 339 F.3d at
1055 (citing SEC v. Coldicutt, 258 F.3d 939, 941 (9th Cir.
                 MILLENKAMP v. DAVISCO FOODS                4305
2001)). We review the district court’s decisions to admit
Exhibits 25 and 18 for abuse of discretion. See Tritchler, 358
F.3d at 1155.

                              (a)

   [10] Davisco argues that the district court erred by failing
to hold a Daubert hearing before admitting Dr. Kertz’s testi-
mony and that the testimony lacked foundation. We disagree.
“District courts are not required to hold a Daubert hearing
before ruling on the admissibility of scientific evidence.” In
re Hanford Nuclear Reservation Lit., 292 F.3d at 1138 (citing
United States v. Alatorre, 222 F.3d 1098, 1102 (9th Cir.
2000)). Davisco deposed Dr. Kertz. The parties provided the
district court with briefing on his scientific expertise and pro-
posed testimony prior to trial. The district court could prop-
erly determine that this information comprised an adequate
record from which the court could make its ruling. See Oddi
v. Ford Motor Co., 234 F.3d 136, 154 (3d Cir. 2000) (decid-
ing no abuse of discretion for failure to hold an evidentiary
hearing when district court had depositions and affidavits of
plaintiffs’ experts). In addition, Dr. Kertz testified as to his
credentials, prior to the district court’s ruling on the admissi-
bility of his opinion. Accordingly, we conclude that the dis-
trict court conducted an adequate inquiry before admitting Dr.
Kertz’s testimony (despite not conducting a separate Daubert
hearing).

   [11] Moreover, Dr. Kertz’s scientific testimony was admis-
sible, because it was supported by a sufficient foundation. He
arrived at his conclusions using scientific methods and proce-
dures. Those conclusions were not mere subjective beliefs or
unsupported speculation. See Claar v. Burlington N. R.R. Co.,
29 F.3d 499, 502 (9th Cir. 1994). The Millenkamps’ veteri-
narian, Dr. Mihlfried, had previously identified rumen acido-
sis as the likely cause of death in the calves he had examined.
Dr. Kertz provided foundational testimony as to his back-
ground in calf nutrition and knowledge of acidosis, including
4306             MILLENKAMP v. DAVISCO FOODS
several peer reviewed publications. Dr. Kertz testified also
that he analyzed the Millenkamps’ feed mixture with the
“Young Calf Model”—a peer reviewed computer program for
evaluating a feed mixture. Dr. Kertz was not required to
address all possible causes of the calves’ illness with “differ-
ential diagnosis methodology.” See Clausen, 339 F.3d at
1057. Dr. Kertz did not purport to employ differential diagno-
sis, and Clausen does not preclude the use of all other meth-
ods to determine the cause of an illness. See id. at 1057-61.
Accordingly, the district court did not abuse its discretion in
admitting this expert testimony.

                              (b)

   Exhibit 25 is a letter from Davisco responding to the Mil-
lenkamps’ request for a $500,000 settlement prior to suit. We
must determine whether the district court’s decision to admit
the letter was an abuse of discretion. See Tritchler, 358 F.3d
at 1155. The district court admitted Exhibit 25 over Davisco’s
objection that it was irrelevant and part of settlement negotia-
tions. See Fed. R. Evid. 401, 403 & 408. We conclude that the
district court should not have admitted Exhibit 25.

   [12] Rule 408 bars the admission of settlement negotiations
offered to prove liability. However, it does not require exclu-
sion when the evidence is offered for another purpose. Fed. R.
Evid. 408(b). See also Brocklesby v. United States, 767 F.2d
1288, 1292 (9th Cir. 1985). Exhibit 25 may be settlement cor-
respondence showing liability, but it is not admissible for that
purpose. Exhibit 25 was not relevant for any admissible pur-
pose and should not have been admitted.

   [13] Relevant evidence is “evidence having any tendency
to make the existence of any fact that is of consequence to the
determination of the action more probable or less probable
than it would be without the evidence.” Fed. R. Evid. 401. We
conclude that Exhibit 25 has no tendency to make any fact
that is of consequence to the determination of the Mil-
                 MILLENKAMP v. DAVISCO FOODS                4307
lenkamps’ breach of warranty claims any more or less proba-
ble than it would be without the letter. Additionally, even if
Exhibit 25 were of limited relevance, it should be “excluded
if its probative value is substantially outweighed by the dan-
ger of unfair prejudice. . . .” Fed. R. Evid. 403. Davisco wrote
the letter after the Millenkamps informed it of the problems
they had with the milk permeate. Thus, the Millenkamps
argue that it has probative value as to Davisco’s knowledge
of the Millenkamps’ intended use of the milk permeate at the
time of sale. However, the prejudicial effect of the threat in
Exhibit 25 to “aggressively pursue remedies” against the Mil-
lenkamps (should they file suit against Davisco) substantially
outweighed any potential limited relevance. Accordingly,
Exhibit 25 should not have been admitted, and on remand
should not be admitted in the course of a new trial.

                               (c)

   Exhibit 18 is a letter from Cargill’s nutritionist, Matt
Schmitt, to Bill Millenkamp, discussing the cause of the Mil-
lenkamps’ calves’ illnesses. The district court admitted
Exhibit 18 over Davisco’s objection that it was hearsay. The
court held that the letter was a Rule 803(6) business record
hearsay exception. See Fed. R. Evid. 803(6). We conclude
that this evidentiary ruling was an abuse of discretion. See
Tritchler, 358 F.3d at 1155.

   [14] In order to be admissible under Rule 803(6), a docu-
ment must have been “made at or near the time” of the events
it records or describes, “by, or from information transmitted
by, a person with knowledge” of those events, “kept in the
course of a regularly conducted business activity,” and part of
a business’s “regular practice.” Fed R. Evid. 803(6). Exhibit
18 fails to meet the requirements of Rule 803(6) for admis-
sion. It was not generated in the ordinary course of Davisco’s
business, nor kept in the course of the regularly conducted
business activity. Instead, Exhibit 18 appears to have been
generated in anticipation of litigation, rather than as part of a
4308             MILLENKAMP v. DAVISCO FOODS
regular business practice. It places the blame for the calves’
illness on Davisco. Moreover, there is no testimony from the
letter’s author nor other evidence that Exhibit 18 would have
been generated, but for the Millenkamps’ request. See, e.g.,
Latman v. Burdette, 366 F.3d 774, 787 (9th Cir. 2004) (bank
records not admissible where no evidence was offered that
they were generated as part of a bank’s “regularly conducted
activity”). Accordingly, we reverse the district court with
respect to its admission of Exhibit 18.

                              (2)

   Davisco also argues that the district court erred by (a)
rejecting Davisco’s proposed spoliation of evidence jury
instruction and (b) failing to give the jury a “Time of Deliv-
ery” jury instruction. We review the district court’s decision
not to provide a spoliation instruction for an abuse of discre-
tion, see Transue v. Aesthetech Corp., 341 F.3d 911, 920-21
(9th Cir. 2003). Because Davisco asserts that the court mis-
stated the law when denying its “Time of Delivery” instruc-
tion, we review that question de novo, see Fireman’s Fund
Ins. Co., 106 F.3d at 1469.

                              (a)

   At the trial’s conclusion, Davisco sought a jury instruction
that would have allowed the jury to draw adverse inferences
from the Millenkamps’ alleged failure to retain evidence.
Davisco argues that the Millenkamps failed to preserve (1)
evidence of tissue samples collected as part of necropsies, (2)
the feed provided to the Millenkamps’ calves, (3) the milk
permeate as of the time of the incidents, and (4) other relevant
evidence. Davisco argues further that, had the district court
instructed the jury regarding spoliation, it “may well have
provided different responses to the liability interrogatories.”
We disagree.

  [15] The adverse inference a jury may draw from the
destruction of evidence is “based on two rationales, one evi-
                 MILLENKAMP v. DAVISCO FOODS               4309
dentiary and one not.” Akiona v. United States, 938 F.2d 158,
161 (9th Cir. 1991). “The evidentiary rationale is nothing
more than the common sense observation that a party who has
notice that a document is relevant to litigation and who pro-
ceeds to destroy the document is more likely to have been
threatened by the document than is a party in the same posi-
tion who does not destroy” it. Id. The second rationale has to
do with “its prophylactic and punitive effects”—“[a]llowing
the trier of fact to draw an adverse inference presumably
deters parties from destroying relevant evidence before it can
be introduced at trial.” Id. Allowing Davisco’s jury instruction
serves neither rationale.

   [16] Both rationales presume that the evidence-destroying
party knew of impending litigation that would render the evi-
dence relevant. Yet there is no evidence in the record to indi-
cate that the Millenkamps knew that litigation would be
forthcoming when they allowed the evidence to spoil. The
Millenkamps’ attorney apparently wrote Davisco a letter con-
templating litigation on October 29, 2002, but Mihlfried con-
ducted the necropsies on June 3 and 4, 2002—nearly five
months prior to the letter. The evidence had likely deterio-
rated or been discarded by the time that the Millenkamps
determined legal action was appropriate. Accordingly, the
benefits of allowing the jury to draw negative inferences from
the spoliation of evidence—that the destroyed evidence was
likely damaging to the party’s case—would not be realized by
Davisco’s proposed instruction. Id.

   [17] Similarly, providing the jury a spoliation instruction
would not serve the deterrence rationale in these circum-
stances. Under this rationale, “[a] party should only be penal-
ized for destroying documents if it was wrong to do so, and
that requires, at a minimum, some notice that the documents
are potentially relevant.” Id. Because it was not “wrong” to
allow the evidence to spoil nearly five months before Davisco
could show that the Millenkamps contemplated any litigious
4310             MILLENKAMP v. DAVISCO FOODS
intent, we conclude that the district court did not abuse its dis-
cretion in rejecting Davisco’s proposed instruction.

                               (b)

   Davisco challenges the district court’s failure to instruct the
jury that “the express warranty could only apply to future per-
formance if explicitly stated.” Because Davisco asserts that
the district court misapplied the law in instructing the jury, we
review that instruction de novo. See Fireman’s Fund Ins. Co.,
106 F.3d at 1469. In these circumstances, we affirm the dis-
trict court.

   [18] Davisco’s argument with regard to breach of express
warranty is waived under the Ninth Circuit’s strict interpreta-
tion of Federal Rule of Civil Procedure 51. See Voohries-
Larson v. Cessna Aircraft Co., 241 F.3d 707, 713-15 (9th Cir.
2001). Because Davisco did not advocate for any “Time of
Delivery” instruction at trial, and only included a “Time of
Delivery” instruction in its proposed jury instructions on
breach of implied warranty, we conclude that Davisco cannot
now assert a deficiency in the express warranty instructions.

   [19] Further, the district court should not have given a
“Time of Delivery” instruction as to these breach of express
or implied warranty claims. Under Idaho law, an implied war-
ranty may be breached by a latent defect that could not have
been discovered during an inspection at delivery. Whitehouse
v. Lange, 910 P.2d 801, 807 (Idaho Ct. App. 1996). Idaho
Code Section 28-2-725(2) expressly states that, “where a war-
ranty explicitly extends to future performance of the goods,”
the breach occurs at the time of such performance. While a
buyer must inspect its contracted-for goods at the time of
delivery to find patent defects, that same buyer is allowed a
reasonable time after inspecting and accepting the goods to
discover latent defects. Idaho Code § 28-2-608. Here, the Mil-
lenkamps allege a breach due to a latent defect in milk
permeate—its propensity to turn acidic and thus harmful to
                 MILLENKAMP v. DAVISCO FOODS                4311
calves if not refrigerated. Accordingly, the defect could not
have been found on inspection at delivery. The district court
therefore did not misstate Idaho law by omitting the proposed
“Time of Delivery” jury instructions.

                               D

   Davisco challenges the district court’s denial of its request
for an offset of the jury’s damages award by the amount of
Cargill’s settlement under Idaho Code § 6-1606 and the dis-
trict court’s award of attorneys’ fees to the Millenkamps. The
Millenkamps cross-appeal, arguing that the district court
should have awarded them pre-judgment interest. Because (1)
we conclude that the district court erred in instructing the jury
regarding Idaho’s Milk Permeate Labeling Law and in admit-
ting Exhibits 25 and 18, and (2) we conclude that these errors
unfairly prejudiced Davisco, we reverse the district court and
remand this case for a new trial. Accordingly, all issues on
appeal that relate to the damages award, fees, and prejudg-
ment interest are moot, because they are predicated upon the
jury’s conclusions that Davisco was liable for the Mil-
lenkamps’ damages.

 AFFIRMED in part, REVERSED in part, and
REMANDED. Each party shall bear its own costs on appeal.