Petition for Writ of Certiorari — Transcraft Corp. v. Liberty Mutual Insurance
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Supreme Court of the United States
OCTOBER TERM, 1994
TRANSCRAFT CORPORATION, and
CUNNINGHAM ENTERPRISES
CORPORATION,
Petitioners,
versus
LIBERTY MUTUAL INSURANCE
COMPANY, INC., a Corporation,
GALVIN, STALMACK, KIRSCHNER &
CLARK, a Partnership,
FRANCIS J. GALVIN, JR., Attorney
at Law, and
ERIC L. KIRSCHNER, Attomey at Law,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Rodney V. Taylor
David J. Theising
CHRISTOPHER & TAYLOR
1219 North Delaware Street
P.O. Box 2850
Indianapolis, Indiana 46206-2850
Telephone: (317) 635-9000
Counsel for Petitioners
Frederic C. Sipe
William L. Schlosser
SIPE PANKOW HAN RUMELY & HEHNER
225 North Delaware Street
Indianapolis, Indiana 46204-2137
Telephone: (317) 269-1999
Co-Counsel for Petitioners
i
QUESTIONS PRESENTED FOR REVIEW
I. Whether, in this federal diversity action, the decision and
opinion of the Court of Appeals violates the doctrine established in
Erie R. Co. v. Tompkins in rejecting the well-settled state law mea-
sure of damages employed by the District Court and applying a new
federal law measure of damages.
Il. Whether the decision and opinion of the Court of Appeals
contravenes the Seventh Amendment of the United States
Constitution and the principles of Daubert v. Merrill Dow
Pharmaceuticals, Inc. by reversing the judgment on jury verdict of
the District Court on the basis of two economic treatises which were
outside the record, never established as authoritative by any expert
witness at trial pursuant to F.R.Evid. 803(18), and neither the parties
nor the trier of fact ever had any opportunity to consider such trea-
tises or to subject any proponent of such a treatise to cross-exami-
nation.
III. Whether the refusal of the District Court to admit into evi-
dence the transcript of the Week/ey trial was merely harmless error,
and not a proper ground for gvanting a new trial on liability.
to
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i
LIST OF ALL PARTIES TO THE PROCEEDINGS
. Transcraft Corporation (Plaintiff-Appellee)
— subsidiary of Cunningham Enterprises Corporation
Cunni ‘cham Enterprises Corporation (Plaintiff-Appellee)
— parent company of Transcraft Corporation
Galvin, Stalmack, Kirschner & Clark (Defendant-Appellant)
Francis J. Galvin, Jr. (Defendant-Appellant)
Eric L. Kirschner (Defendant-Appellant)
Liberty Mutual Insurance Company (Defendant)
ill
TABLE OF CONTENTS
Questions Presented for Review ............... cece cecce. i
List of All Pasties to the Proceecimg. ... . 2... ccc cece cece il
eS Ae PSB CU i. le wee wb ose cueecce ill
EEE SRE PEE PEE OE Oe Oe Te ek ED is
AE ae os re ere ee CaS a ee |
a a he PAOLO SCRE 2
ee er a sg ale Ge eee sete hekaae ts 2
PE ree ee ae er er ee wee ora ee Lee 7
The Decision and Opinion of the Court of Appeals in this
Federal Diversity Action Violates the Doctrine Established
in Erie R. Co. v. Tompkins by Rejecting the Well-Settled
State Law Measure of Damages Employed by the District
Court and Applying a New Federal Law Measure of
LE keine wes Py nee FAS Hote weed wan dee 7
The Decision and Opinion of the Court of Appeals
Contravenes the Seventh Amendment of the United States
Constitution and the Principles of Daubert v. Merrill Dow
Pharmaceuticals, Inc. by Reversing the Judgment on Jury
Verdict of the District Court on the Basis of Two Economic
Treatises Which were Outside the Record, Never
Established as Authoritative by Any Expert Witness at
Trial Pursuant to F.R.Evid. 803(18), and Neither the
Parties Nor the Trier of Fact Ever had Any Opportunity to
Consider Such Treatises or to Subject Any Proponent of
Such a Treatise to Cross-Examination................. 13
The Refusal of the District Court to Admit into Evidence the
Transcript of the Weekley Trial was Wot Error, or
Constituted Merely Harmless Error, and is Not a Proper
Ground for Granting a New Trial on Liability. .......... 18
OEMS Se oe a ha ee koe esas nace ee see
IE OEE rs A-|
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SS DES ES 2 ee es A-17
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iv
TABLE OF AUTHORITIES
CASES
Allen & O'Hara, Inc. v. Barrett Wrecking, Inc., 964 F.2d
oe tL Es ee er rr ere e re 12
Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, 369
U.S. 355 (1962). . bard ace ik anata aN aid a 15, 16
Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257
CUT th vious ngld't a 200-5 N oe ée Cnlee Shee ae ks oe 88 R as 12
Caesar Electronics, Inc. v. Andrews, 905 F.2d 287
Ca Ks Secours eel eis CRhehetee eed ete As 1]
Caster v. Hennessey, 781) F.2d 1569 (11th Cir. 1986) ......... 1]
Chesapeake & Ohio R. Co. v. Kelly, 241 U.S. 485 (1916)... ... 1]
Chronister Oil Co. v. Unocal Refining & Marketing, 34
F.3d 462 (7th Cir. 1994) ......... kccnpae cabeaees 9
Crockett v. Uniroyal, Inc., 772 F.2d 1524 (11th Cir. 1985) ..... 1]
Daubert v. Merrill Dow Pharmaceuticals, Inc., __
jk See Ss ee 0 err ere erry eS 16, 17, 18
Ellis v. City of Chicag», 667 F.2d 606 (7th
EP SED 65k ox ale Os oils Ca eemalbs SOR e nd 19
Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). ....... 9, 10, 11, 13
Europlast, Lid. v. Oak Switch Systems, Inc., 10 F.3d 1266
ye | ry ree ee eee ee es yy ee 12
First Commodity Traders, Inc. v. Heinold Commodities,
ie, FOR Fe Oe CE, FIR) eas Se eh ii es See eee 12
Frve v. United States, 54 App.D.C. 46, 293 Fed. 1013
CURE % CAEN SG cua a ok RES ce LE REh Pees ec 17
Frymire-Brinati v. CPMG Peat Marwick, 2 F.3d 183 (7th
CM: SOPs 5540 eo ks ed ESR 1a ee ER ils 17
Guaranty Trust Co. v. York, 326 U.S. 99 (1945)... ....... 10, 11
Hann vy. State, 447 N.E.2d 1144, trans. denied (ind.App.
FO a ko 64, ous a CL enn Ae eel 8
Havoco of America, Inc. v. Hilco, Inc., 799 F.2d 349 (7th
ee eee a rn Trp re Ia 1]
Klaxon Co. v. Stentor Electric Mfg., 313 U.S. 487 (1941)... ... 12
Lake Erie & WR. Co. v. Molloy, 78 \nd.App. 72, 134
Fe HEP PU THREE 50 005s cere een kk ie ua bewas 8
Lincoln Nat. Life Ins. Co. v. NCR Corp., 772 F.2d 315 (7th
Cir. 1985)
Meeker v. Lehigh Valley Railroad, 236 U.S. 434 (1915)... .... 20
\
Mitroff v. Xomox Corp., 797 F.2d 271 (6th Cir. 1986)......... 18
Monessen Southwestern R. Co. v. Morgan, 486 U.S. 330
CED gc oc kc MMos ee Oa ae Oe eee Asti ss I!
New York Central R. Co. v. Reidenbach, 7) \nd.App. 390,
S25 NE. 5S Cia, AMw.- TOTP ass rs ieee eae ee ies vee: 8
Ross v. Black & Decker. Inc., 977 F.2d 1178, reh. denied
(7th Cir. 1992), cert. denied, US. __, 113 S.Ct.
Ce CR i 2 a a an 5 bas wh eee be ea eek hess 12
Simmons, Inc. v. Pinkerton ’s, Inc., 762 F.2d 591 (7th Cir.
PO svc bck a ces oe eee Ce aa kee 1]
Swifi u Tyoom, 44 UB. TRAE cc cc ccwencnesvsei 10, 13
Transcontinental & Western Air, Inc. v. Koppal, 345 U.S.
GED TAGE ia a 5 Lee CER ee ERR ERRER Ns PV Oe te 12
Transcraft, Inc. v. Galvin, 39 F.3d 812, reh. denied
e Lk Bere errr ee 1, 8, 9, 12, 18, 19, 20, 21
United States. v. Bonds \2 F.3d 540 (6th Cir. 1993) .......... 18
United States v. Borden Co., 347 U.S. 514 (1915). ........... 20
United States v. Soconyv—Vacuum Oil Co., 310 U.S. 150
CU oe oo x eee a es a Ee ee Oe 19
Wiese-GMC, Inc. v. Wells, 626 N.E.2d 595 (Ind. App.
i ER Ee re ee Oe ne Tee eee 8
UNITED STATES CONSTITUTION
tp Re BO Sa en te pee ep rencne ter ereT 16
STATUTES
y £ 1S Sai +. |) Sere eeeee ee errr ae ayer ae ere 2
Zee Ge a, AEE kb Sp die 6 EAA PRR VOR 4,8
FEDERAL RULES OF CIVIL PROCEDURE
, & Be’ SB Ae err eee re cee es eer RRRT EET 20
FEDERAL RULES OF EVIDENCE
SE RS RS ore rare ere Teer re ee ree 15
I i Sc a a aed ee 17
he BO FRIED erga eerertoens herrea na 14,15
POON ML kg Le SN I OLOASTR, ms e+ Lee AA OLLIE, GRITS 2
l
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1994
TRANSCRAFT CORPORATION, and
CUNNINGHAM ENTERPRISES
CORPORATION,
Petitioners,
versus
LIBERTY MUTUAL INSURANCE
COMPANY, INC., a Corporation,
GALVIN, STALMACK, KIRSCHNER &
CLARK, a Partnership,
FRANCIS J. GALVIN, JR., Attorney
at Law, and
ERIC L. KIRSCHNER, Attorney at Law,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Petitioners Transcraft Corporation and Cunningham Enterprises
Corporation, by counsel, pray that a Writ of Certiorari issue io
review the judgment and opinion of the United States Court of
Appeals for the Seventh Circuit entered in these proceedings on
November 14, 1994.
OPINIONS BELOW
The Opinion of the United States Court of Appeals for the
Seventh Circuit, rendered on November 14, 1994 and published at
39 F.3d 812, is reproduced as Appendix “A” hereto.
The final Judgment of the United States District Court for the
Southern District of Illinois, entered in these proceedings on August
31, 1993, is reproduced as Appendix “B” hereto.
The Order of the United States Court of Appeals for the
Seventh Circuit denying the Petitioners’ Petition for Rehearing with
2
Suggestion of Rehearing In Banc, entered on December 28, 1994, is
reproduced as Appendix “C” hereto.
The unpublished Order of the District Court Magistrate, entered
on May 8, 1992 in these proceedings, is reproduced as Appendix
“D” hereto.
JURISDICTION
The judgment and opinion of the Court of Appeals in these pro-
ceedings was entered on November 14, 1994. The Order of the
Court of Appeals denying Petitioners’ Petition for Rehearing with
Suggestion of Rehearing In Banc in these proceedings was entered
on December 28, 1994.
The jurisdiction of this Court to review the judgment of the
Court of Appeals by writ of certiorari is invoked under 28 U.S.C.
§1254(1).
STATEMENT OF THE CASE
Transcraft Corporation is a manufacturer of flatbed semitrailers,
located in Anna, Illinois (Tr.1931, 1934). Over the years, it has man-
ufactured tens of thousands of trailers (Tr.2420), and over 8,000 sim-
ilar to the one involved in this case (Tr.2422). Founder and owner
William Cunningham testified, “. . .we are recognized in the indus-
try today as the Cadillac of the flatbed business” (Tr.1935), and cited
Transcraft’s consistent first-place standing in an annual survey by
the Truck Trailer Manufacturers Association (Tr.1947-48).
The accident. On June 29, 1985, Victor Weekley was driving a
semitractor pulling a loaded Transcraft flatbed trailer. His wife was
riding in the cab. He attempted to exit an interstate highway in Ohio,
and lost control of the rig. An eyewitness told a police officer that
the truck was taking the curve too fast, went off the road, and rolled
over (Tr.2742-3; Vol.17, Tr.95).
When a semitrailer rolls over or crashes, it usually comes apart
at the fifth wheel assembly, which is designed to withstand com-
pression loading and horizontal loading, not vertical “pull-apart”
nN sem ee
3
loading (Tr.2145-6). The fifth wheel assembly on the Weekley trail-
er pulled apart (Tr.2076-7).
The Weekley case and aftermath. The Weekleys brought an
action against Transcraft for their injuries, claiming that defective
welds in the fifth wheel plate caused the accident. (That action will
be referred to as Weekley.) Transcraft’s insurer, Liberty Mutual
Insurance Company (“Liberty Mutual”), retained Galvin, Stalmack,
Kirschner & Clark, and specifically Francis J. Galvin, Jr. (“Galvin”)
and Eric L. Kirschner (“Kirschner”) to defend Transcraft. A verdict
resulted in a judgment of $3.5 million compensatory and $1.25 mil-
lion punitive damages against Transcraft. Liberty Mutual then nego-
tiated a settlement of the case before appeal whereby it paid the
Weekleys the amount of the compensatory damage award, $3.5 mil-
lion. (Tr.2057-9)
For the year 1989, Liberty Mutual increased Transcraft’s insur-
ance premium and reduced the limits of coverage (Tr.2579). The fol-
lowing year, it declined to renew the insurance, citing as its reason
“adverse loss experience.” The notification letter was signed by
District Manager Walter Ruch (Exhibit 98C). Ruch testified that he
made the decision not to renew Transcraft’s coverage the previous
year, but not in time to give the 60-day written notice of non-renew-
al which is required by Illinois law (Tr.647-8).
Being without insurance, Transcraft had bid specifications pre-
pared to submit to insurance companies. Walter Klein, insurance
agent and owner of two agencies, reviewed the specifications and
found them orderly and professional (Tr.2557, 2581-2). He submit-
ted applications to more than 20 insurance companies, and received
numerous declinations, because of the $3.5 million loss on
Transcraft’s record (Tr.2582). No bid received met Transcraft’s
needs, in Klein’s opinion, or in Transcraft’s (Tr.2584). All bids con-
tained a requirement of a large “self-insured retention”, or “SIR”,
similar to a deductible, and other undesirable features (Tr.2583).
Stephen Bird, a Chartered Property and Casualty Underwriter, testi-
fied that with a series of claims under $250,000 (the required SIR),
the annual premiums together with the uninsured losses would
exceed Transcraft’s entire annual profit (Tr.2361-4).
Without products liability insurance, Transcraft’s corporate life
could be snuffed out at any time by a large claim. (Testimony of
Attorneys’ expert, insurance agent Michael Peady (Tr.3119). The
4
market value of an uninsurable business is equal to the salvage value
of its assets, because its cash flow can be interrupted at any time
(Tr.2025, 2656-58, 202).
The present legal malpractice action. Transciaft Corporation
and Cunningham Enterprises Corporation (hereinafter referred to
collectively as “Transcraft”) brought the present action against
Liberty Mutual and Attorneys in the United States District Court for
the Southern District of Illinois, alleging malpractice in Attorneys’
representation of Transcraft Corporation in the products liability
case brought by the Weekleys. Jurisdiction was based on diversity of
citizenship under 28 U.S.C. §1332 (a)(2).
Transcraft is a Delaware corporation with its principal place of
business in Anna, Illinois.
Liberty Mutual is incorporated in Massachusetts with its princi-
pal place of business in Boston. Liberty Mutual is qualified to do
business in I[]linois.
Galvin, Stalmack, Kirschner and Clark was a law partnership
with offices located in Hammond, Indiana. Frank Galvin and Eric
Kirschner were partners in that office, and are both licensed to prac-
tice law in Indiana. !
The amount in controversy exceeds $50,000.
Prior to trial, the District Court Magistrate determined that
Indiana law applied to Transcraft’s claims against Attorneys and
Liberty Mutual. A copy of that Order entered in these proceedings
on May 8, 1992 is reproduced as Appendix “D” hereto.
At the jury trial on this action, which covered several months of
the summer of 1993, Transcraft presented substantial evidence of
Attorneys’ malpractice. Transcraft employee Bruce Agne, who
attended the Weekley trial as its representative, testified that the
Weekleys’ attorney artfully questioned Transcraft’s welders on
deposition and created a misleading impression for the jury in that
‘Galvin. Stalmack, Kirschner & Clark, and its partners Kirschner and Galvin,
hereinafter will be collectively referred to as “Attorneys” unless otherwise speci-
fied.
5
case (Tr.2495-7). Cunningham testified sirnilarly (Tr.2100-1). In the
Weekley case depositions, Galvin asked no questions of welders (or
welding inspectors) Earl Lee Bond (Tr.232, 274), Gary Pruitt
(Tr.2782, 2829), Skip Ahlberg (Tr.2832, 2898), Dan Marshall
(Tr.3033, 3079), and Robert Sanders (Tr.2985, 3025). Nor did they
call a single welder to the witness stand, nor a foreman, nor the pro-
duction managers or supervisors (Tr.2000,2451).
Cunningham testified in the trial of this action: “We have never
had a fifth wheel assembly failure due to welds -reaking. We main-
tain that stance forever.” (Tr.2092) He also testified that, if a weld
had an excessive number of pin holes [porosity] in it, it would either
be ground out and rewelded or air arced out and rewelded, depend-
ing upon the ability to get into the area and do the work. (Tr.2097).
Plaintiffs’ counsel at the Weekley trial used three non-medical
expert witnesses: an accident reconstructionist, an engineer, and
metallurgist. Attorneys used a single expert witness ai trial, an engi-
neer. (Tr.2271) Attorneys did not obtain an independent medical
examination (IME) of either plaintiff, nor did they have any expert
medical testimony to counter that of plaintiffs’ medical experts.
(Tr.2278-80) Even though a Liberty Mutual employee had expressed
doubt during the investigation of the claim that Victor Weekley’s
condition was as bad as he and his doctors said, Attorneys did not
have any surveillance done. (Tr.2279, 1777) Although he was said to
be terribly injured, never to drive again, within a few months after
his trial Mr. Weekley had applied for and obtained a West Virginia
driver’s license, stating that he was in good health and unimpaired.
(Exhibits 31A and 31) Later video surveillance showed that he leads
a vigorous life and continues to drive. (Tr.1926-30) Although
Attorneys had proof that Victor Weekley had faked seizures, they
did not present such proof at the trial. (Tr.586-90)
Evidence at trial of other acts of malpractice included the fail-
ure to object to venue in the Weekley case (Tr.2263-4), failure to dis-
close Attorneys’ prior representation of the Weekleys (Tr.481-508),
failure to notify Transcraft that the punitive damages claim against it
had been reinstated until the middle of trial (Tr.3244-5), and failure
to obtain a stipulation that the judgment would be vacated as a con-
dition to settlement (Tr.2280, 3253).
The jury was also presented with substantial evidence at trial
concerning the damages proximately caused to Transcraft as the
6
result of Attorneys’ malpractice. Transcraft’s expert, Professor
George Launey, testified that the inability of Transcraft to obtain
suitable products liability insurance following the judgment in
Weekley destroyed its value as a going concern, thereby reducing its
value to its “liquidation value.” It was Professor Launey’s opinion
that the loss suffered by Transcraft was between $6.4 million dollars
and $18.3 million dollars, less the company’s liquidation value
which other experts calculated to be approximately $800,000.
At the conclusion of the evidence at trial, the jury was instruct-
ed by the District Court on the proper measure of damages to be
employed in calculating Transcraft’s damages.’
On August 25, 1993, the jury returned verdicts of $1,000,000
against Attorneys and $500,000 against Liberty Mutual. Judgment
was entered on August 31, 1993. Post-judgment motions were filed
by Attorneys on September 3, 1993, and by Liberty Mutual on
September 8, 1993. Both motions were denied by the District Court
on October 21, 1993, which order was entered on October 27, 1993.
Liberty Mutual settled with Transcraft for the amount of the judg-
ment against it, $500,000.
The United States Court of Appeals for the Seventh Circuit
acquired jurisdiction of this proceeding on November |, 1993 when
Attorneys filed their notice of appeal in the United States District
Court for the Southern District of Illinois. Following briefing and
oral argument, the Court of Appeals rendered its decision and opin-
ion on November 14, 1994, reversing and remanding the cause for
retrial with instructions. Transcraft timely filed its Petition for
Rehearing with Suggestion of Rehearing In Banc on December 8,
1994, which was denied by the Court of Appeals on December 28,
1994,
*The following instruction was submitted to the jury:
When personal property such as a business is damaged or partially destroyed,
the measure of damages is the difference between the fair market value of the
property immediately before the damage and the fair market value of the prop-
erty immediately after the damage. Fair market value means the price a will-
ing seller will accept from a willing buyer when neither party is compelled to
do so.
(Tr. 3546-47).
7
ARGUMENT
THE DECISION AND OPINION OF THE COURT OF
APPEALS IN THIS FEDERAL DIVERSITY ACTION
VIOLATES THE DOCTRINE ESTABLISHED IN
ERIE R. CO. v. TOMPKINS BY REJECTING THE
WELL-SETTLED STATE LAW MEASURE OF DAMAGES
EMPLOYED BY THE DISTRICT COURT AND APPLYING
A NEW FEDERAL LAW MEASURE OF DAMAGES.
In granting Attorneys a new trial on the issue of damages, the
Court of Appeals determined that the jury was not properly instruct-
ed on the appropriate standard for measuring damages. 39 F.2d at
820-21. In so ruling, the Court of Appeals rejected the instruction on
damages embracing the well-settled state law measure of damages
employed by the District Court, and announced a new federal law
measure of damages to be applied on retrial, set forth at length in the
opinion of the Court of Appeals.
It must be emphasized that, on appeal to the Court of Appeals,
Attorneys made no claim of error regarding the formula employed in
the District Court to calculate damages in this case.’ Rather,
Attorneys’ argument dealt solely with the issue of the sufficiency of
the evidence presented by Transcraft at trial to prove damages (Brief
and Argument of Attorneys, pp. 37-45). However, in addressing
Attorneys’ damage argument, the Court of Appeals embarked on a
lengthy analysis of economic theory and completely recalculated the
‘Attorneys tendered an instruction for submission to the jury which closely
tracked the law of Indiana concerning the calculation of damages. That tendered
instruction stated:
If you decide for the Plaintiff on the question of liability, you must then fix the
amount of money which will reasonably and fairly compensate it for any of the
following elements of damage proved by the evidence to have resulted from the
wrongful conduct of the Defendants:
(a) The damage to personal property, determined by the difference between its
fair market value immediately before the occurrence and its fair market value
immediately after the occurrence;
(b) The damage to real property, determined by the difference between its fair
market value immediately before the occurrence and its fair market vale imme-
diately after the occurrence.
Whether any of these elements of damages has been proved by the evidence is
for you to determine.
(Defendant's Tendered Instruction No. 18).
8
damages in this case based upon its own new federal law standard
for the measure of damages.*
As already noted, the District Court’s jurisdiction of this action
was based upon diversity of citizenship under 28 U.S.C.
§1332(a)(2). Prior to trial and after briefing by all parties, the
District Court Magistrate determined that Indiana law would be
applied to all of Transcraft’s claims against Attorneys and Liberty
Mutual. A copy of that Order entered on May 8, 1992 is reproduced
as Appendix “©” hereto. On appeal to the Court of Appeals,
Attorneys raised no issue with regard to this Order or the District
Court’s “choice of law.”
At the conclusion of the evidence at trial, the District Court
instructed the jury that “when personal property such as a business
is damaged or partially destroyed the measure of damages is the dif-
ference between the fair market value of the property immediately
before the damage and the fair market value of the property imme-
diately after the damage.” This instruction fairly and accurately set
forth the well-settled formula for calculating damaged laid out by
Indiana state common law:
.. .the fundamental measure of damages in a situation
where an item of personal property is damaged, but not
destroyed, is the reduction in fair market value caused
by the negligence of the tort feasor.
Wiese-GMC, Inc. v. Wells, 626 N.E.2d 595, 599 (ind.App. 1993);
Hann v. State, 447 N.E.2d 1144, 1146, trans. denied (Ind.App.
1983). This standard for the measure of damages has been applied to
all forms of property damage in the State of Indiana since the turn of
the century. New York Central R. Co. v. Reidenbach, 7\ \nd.App.
390, 125 N.E. 55 (1919); Lake Erie & W. R. Co. v. Molloy, 78
Ind.App. 72, 134 N.E. 913 (1922).
In its opinion, the Court of Appeals rejected this well-settled
state law measure of damages as “confusing, or at least incomplete,”
because “[t]his formulation obscures the principle that where, as
here, the trial is held long after the damaging event occurs, inter-
‘In its opinion, the Court of Appeals admitted to its overly zealous approach:
“The criticisms that we have made of Transcraft’s evidence of damages go beyond
anything found in the defendant’s brief...” 39 F.3d at 820.
9
vening events may show that any depression in market value imme-
diately after the damaging event (the settlement with the Weekleys)
was transient and inflicted no harm on the plaintiff, in which event
the plaintiff is not entitled to damages.” 39 F.2d at 820-21. This new
“principle” embraced by the Court of Appeals, allowing considera-
tion of events “long after the damaging event occurred” in calculat-
ing damages, directly conflicts with the well-settled state law mea-
sure of damages employed by the District Court of “value immedi-
ately before the damage and value immediately after the damage.”
In the present case, the rejection of Indiana’s formula for calculation
of damages, a formula which no party to this action disputed at trial
or on appeal, and the application of a new federal law formuia
announced by the Court of Appeals, resulted in a substantial change
in the outcome of Transcraft’s case.
The adoption and application of this new federal law standard
for the measure of damages by the Court of Appeals violates the
doctrine long ago laid out by this Supreme Court in Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938), and requires that the opinion of the
Court of Appeals be vacated and the judgment on jury verdict ren-
dered by the District Court be affirmed.
This Court has stated that federal courts are to give due defer-
ence to the substantive law of the states when the federal courts exer-
cise jurisdiction based upon diversity of citizenship. Erie, at 78. The
Erie court stated that:
Except in matters governed by the Federal Constitution or
Acts of Congress, the law to be applied in any case is the
law of the State. And whether the law of the State shall be
declared by its Legislature in a statute or by its highest
court in a decision is not a matter of federal concern. There
‘The only precedent cited by the Court of Appeals for this new “principle” in
measuring damages was the Court’s earlier decision in Chronister Oil Co. v. Unocal
Refining & Marketing, 34 F.3d 462 (7th Cir. 1994), which was a diversity action for
breach of contract under the Uniform Commercial Code “as interpreted by Illinois
courts.” /d. The Court's reliance upon a standard for measure of damages in a
breach of contract action under the Uniform Commercial Code governed by //linois
/aw in the present case involving the standard for measure of damages in a for! case
governed by /ndiana law demonstrates the Court's attempt to adopt and apply anew
federal law standard for the measure of damages based upon its own theories about
ecqnomics.
10
is no federal general common law. Congress has no power
to declare substantive rules of common law applicable in a
State whether they be local in their nature or “general,” be
they commercial law or a part of the law of torts. And no
clause in the Constitution purports to confer such a power
upon the federal courts.
Id. The Erie decision overturned the rule in Swift v. Tyson, 41 U.S. 1
(1842), which had held that a federal court exercising diversity juris-
diction need not apply the common law of the State, but rather that
the federal court was free to exercise its judgment as to what the
common law of the State was, or should be. /d. at 18.
The Erie court overturned Swift based upon the fact that the
application of the rule in Swift:
introduced grave discrimination by non-citizens against
citizens. It made rights enjoyed under the unwritten “gen-
eral law” vary according to whether enforcement was
sought in the state or in the federal court; and the privilege
of selecting the court in which the right should be deter-
mined was conferred upon the non-citizen. Thus, the doc-
trine rendered impossible equal protection of the law. /n
attempting to promote uniformity of law throughout the
United States, the doctrine had prevented uniformity in the
administration of the law of the State.
Erie, at 74-75 (emphasis added). The aim of Justice Brandeis’ opin-
ion in Erie was to halt the erosion of a state’s legitimate authority to
regulate its own affairs which had occurred with the application of
the Swift doctrine. /d. As noted by Justice Frankfurter in Guaranty
Trust Co. v. York, 326 U.S. 99 (1945), the intent of Erie:
was to insure that, in all cases where a federal court is exer-
cising jurisdiction solely because of the diversity of citi-
zenship of the parties, the outcome of the litigation in the
federal court should be substantially the same, so far as
legal rules determine the outcome of litigation, as it would
be if tried in a State court.
Id. at 109 (emphasis added).
1]
The opinion of the Court of Appeals in the present case revives
the mischief warned against by Justices Brandeis and Frankfurter,
which was intended to be cured by Erie. The rejection of Indiana
common law and the adoption and application of a new federal law
measure of damages by the Court of Appeals in the present case
effectively undermines the legitimate authority of the State of
Indiana to regulate its own affairs. As noted in York, the outcome of
federal cases based in diversity should be substantially the same as
if tried in the state court. /d. By rejecting Indiana’s formula for the
calculation of damages, the Court of Appeals has prevented a sub-
stantially similar result as would have been reached had this case
been tried in an Indiana state court.
Since its inception in 1938, the Erie doctrine has undergone
significant interpretation and explanation. Of primary importance to
this case is the explanation that, while state law governs substantive
matters which arise in a federal diversity action, federal law governs
procedural issues which arise in those claims. Caesar Electronics,
Inc. v. Andrews, 905 F.2d 287 (9th Cir. 1990); Caster v. Hennessey,
781 F.2d 1569 (11th Cir. 1986); Crockett v. Uniroval, Inc., 772 F.2d
1524 (11th Cir. 1985); Havoco of America, Inc. v. Hilco, Inc., 799
F.2d 349 (7th Cir. 1986); Simmons, Inc. v. Pinkerton *, Inc., 762 F.2d
591 (7th Cir. 1985).
This Court has made it quite clear that issues related to the calcu-
lation of damages are issues of substunce. In Monessen Southwestern
R. Co. v. Morgan, 486 U.S. 330 (1988), this Court stated:
It has long been settled that “the proper measure of dam-
ages [under the FELA] is inseparably connected with the
right of action,” and therefore is an issue of substance that
“must be settled according to general principles of law as
administered in the Federal courts.”
Id. at 335, quoting Chesapeake & Ohio R. Co. v. Kelly, 241 U.S. 485,
491 (1916). Monessen arose out of a claim brought under the Federal
Employers Liability Act. Therefore, the issue of damages was con-
trolled by federal common law interpreting that act.
However, the broader rule which may be gleaned from
Monessen, that issues related to the calculation of damages are
}?
a
issues of substance, can be applied to cases which find their juris-
dictional basis in diversity of citizenship. This Court has stated that
when the jurisdiction of the district court is based upon diversity of
citizenship, the substantive law of the state should determine the
measure of damages. 7ranscontinental & Western Air, Inc. v
Koppal, 345 U.S. 653, 656-657 (1953); Klaxon Co. v. Stentor
Electric Mfg., 313 U.S. 487 (1941).°
The Seventh Circuit cases that have applied the reasoning of
Erie, Klaxon, and Koppal to the determination of damages in diver-
sity suits are legion. Europlast, Ltd. v. Oak Switch Systems, Inc., 10
F.3d 1266 (7th Cir. 1993) (state law governs determination of puni-
tive damages); Ross v. Black & Decker, Inc., 977 F.2d 1178, reh.
denied (7th Cir. 1992), cert. denied, _U.S.___, 113 S.Ct. 1274
(1993) (state law governs determination of punitive damages); A//en
& O'Hara, Inc. v. Barrett Wrecking, Inc., 964 \ 3d 694 (7th Cir.
1992) (state law governs the availability of and the rules for com-
puting prejudgment interest); First Commodity Traders, Inc. v.
Heinold Commodities, Inc., 766 F.2d 1007 (7th Cir. 1985) (state law
governs the award of attorney’s fees); Lincoln Nat. Life Ins. Co. v.
NCR Corp., 772 F.2d 315 (7th Cir. 1985) (state law governs award
of damages). In this case, however, the Court of Appeals lost sight
of the rule of law established by Erie, Klaxon, and Koppal in reject-
ing the substantive law of the State of Indiana on the proper measure
of damages.
In its opinion, the Court of Appeals stated that the theory of
damages presented to the jury at trial was “a fantastic one.” 39 F.2d
at 818-19. The Court reasoned that the loss of a “purely hypotheti-
cal” sale value of Transcraft following the judgment in Weekley
would be “probabilistic.” /d. at 820. Yet, under the “value before less
value after” measure of damages dictated by well-settled Indiana
law, that is precisely the manner in which Indiana has chosen to cal-
culate damages for nearly a hundred years.
Similarly, with regard to punitive damages, this Court has stated:
In a diversity action, or in any other lawsuit where state law provides the basis
of decision, the propriety of an award of punitive damages for the conduct in
question, and the factors the jury may consider in determining their amount, are
questions of state law.
Browning-Ferris Industries v. Kelco Disposal, 492 U.S. 257, 278 (1988).
13
The decision and opinion of the Court of Appeals undermined
the authority of the State of Indiana to regulate those affairs occur-
ring within its borders. The underlying acts of legal malpractice
were committed by Indiana attorneys in a court sitting in the State of
Indiana. But for the venue requirements in a diversity action, the pre-
sent case would have been tried in Indiana according to Indiana’s
substantive law. Pursuant to the Erie doctrine, diversity should not
prevent the State of Indiana from having some authority and control
over the substance of this claim. However, the opinion of the Court
of Appeals returns us to the time, under Swift, when a federal court
sitting in a diversity case was free to exercise its judgment as to what
the common law of the state was, or should be. As noted in Erie,
“(njo clause in the Constitution purports to confer such a power
upon the federal courts.” Erie, at 78.
The decision and opinion of the Court of Appeals in the present
case violates the Erie doctrine in rejecting the well-settled state law
measure of damages employed by the District Court and in applying
a new federal law measure of damages. That opinion should be
vacated, and the judgment on jury verdict rendered by the District
Court should be affirmed.
THE DECISION AND OPINION OF THE COURT OF
APPEALS CONTRAVENES THE SEVENTH AMENDMENT
OF THE UNITED STATES CONSTITUTION AND THE
PRINCIPLES OF DAUBERT V. MERRILL DOW
PHARMACEUTICALS, INC. BY REVERSING THE
JUDGMENT ON JURY VERDICT OF THE DISTRICT
COURT ON THE BASIS OF TWO ECONOMIC TREATISES
WHICH WERE OUTSIDE THE RECORD, NEVER
ESTABLISHED AS AUTHORITATIVE BY ANY EXPERT
WITNESS AT TRIAL PURSUANT TO F.R.EVID. 803(18),
AND NEITHER THE PARTIES NOR THE TRIER OF FACT
EVER HAD ANY OPPORTUNITY TO CONSIDER SUCH
TREATISES OR TO SUBJECT ANY PROPONENT OF
SUCH A TREATISE TO CROSS-EXAMINATION
Professor George Launey, Transcraft’s expert witness on dam-
ages, is a professor of economics at Franklin College in Franklin,
Indiana. He holds a doctorate in economics and has been a professor at
Franklin College since 1970 (Tr. 2638-39). Professor Launey is a mem-
ber of the American Economic Association, the American Academy of
14
Economic and Financial Experts, and a member of the National
Association of Forensic Economists. Professor Launey has been pro-
viding expert testimony in trial litigation since 1970 (Tr. 2659).
It was the opinion of Professor Launey that the loss to
Transcraft in the present case was the difference between the value
of the company as a going concern and its liquidation value. The loss
would vary depending upon the valuation dates chosen. Since the
alleged wrong is the inability of Transcraft to purchase products lia-
bility insurance at anything significantly below its projected cash
flow, there is an implicit cost associated with a significant increase
in Transcraft’s risk of doing business which roughly corresponds to
its projected cash flow. To purchase insurance and make the risk/cost
explicit would be to eliminate the cash flow in Transcraft as a going
concern (Tr. 2702-2704).
Professor Launey’s method for the calculation of damages was
based upon the blending of two models. One of them was the
“Capital Asset Pricing Model” formulated by Nobel Prize Laureate
William Sharp (Tr. 2648-50). The other model incorporated into
Professor Launey’s calculations was the “Five Year Holding Period
Model” which is commonly used in the evaluation of businesses and
is present in almost every investment finance textbook.
Yet, the Court of Appeals rejected Professor Launey’s expert
testimony:
. .the theory of damages that Transcraft was allowed
through its economic witness to present to the jury was a
fantastic one, revealing on the part of the witness (George
Launey) not only a lack of familiarity with the relevant
principles of corporate valuation (concerning which there
is an extensive scholarly literature illustrated by Clifford
W. Smith, Jr., The Modern Theory of Corporate Finance
(2d ed. 1990), and Richard A. Brealey & Stewart C.
Myers, Principles of Corporate Finance (4th ed. 1991))
but also a lack of common sense.
39 F.3d at 818-19.
It was improper for the Court to rely upon the treatises cited
which were not admitted nor even identified during the course of the
trial below. Fed. R. Evid. 803(18) provides:
14
~
(18) Learned Treatises. To the extent called to the
attention of an expert witness upon cross-examination or
relied upon by the expert witness in direct examination,
statements contained in published treatises, periodicals, or
pamphlets on a subject of history, medicine, or other sci-
ence or art, established as a reliable authority by the testi-
mony or admission of the witness or by other expert testi-
mony or by judicial notice. If admitted, the statements may
be read into evidence but may not be received as exhibit.
(emphasis added). The treatises cited and relied upon by the Court
of Appeals were not established as reliable by any expert testimony.
In fact, they are nowhere even mentioned in the record.
The only other basis for admission would be “judicial notice.”
Judicial notice is governed by Fed. R. Evid. 201, which provides, in
part:
(b) Kinds of facts. A judicially noticed fact must be
one not subject to reasonable dispute in that it is either (1)
generally known within the territorial jurisdiction of the
trial court or (2) capable of accurate and ready determina-
tion by resort to sources whose accuracy cannot reasonably
be questioned.
The economics treatises upon which the Court of Appeals relies
heavily do not come close to meeting either requirement (1) or (2).
They are not generally known, nor are they accurate beyond ques-
tion. Moreover, the parties are entitled to an opportunity to be heard
before a federal court takes judicial notice. Fed. R. Evid. 201(e). It
was improper for the Court of Appeals to rely upon learned treatis-
es which are not established as authoritative anywhere in the record.
Having injected its own economics expertise into this cause,
based on treatises which it considers authoritative, the Court of
Appeals then weighed its own opinions in the field of economics
against those of Transcraft’s expert economist whe testified at trial,
and found its own opinion to be the more credible. In doing so, it
simply substituted its own judgment for that of the jury.
It is very well settled that courts of appeal have no such power.
A statement by this Supreme Court in Atlantic & Gulf Stevedores,
Inc. v. Ellerman Lines, 369 U.S. 355, 358-59 (1962), is directly
applicable here:
16
We might agree with the Court of Appeals had the
questions of fact been left to us. But neither we nor the
Court of Appeals can redetermine facts found by the jury
any more than the District Court cain predetermine them.
For the Seventh Amendment says that “no fact tried by a
jury, shall be otherwise reexamined in any Court of the
United States, than according to the rules of the common
law.”
All parties to these proceedings should be entitled to the oppor-
tunity to examine and cross-examine these economists and test their
opinions before those opinions become part of the record of these
proceedings. The Seventh Amendment to the United States
Constitution requires that the parties to this case be allowed those
fundamental rights. The Seventh Amendment provides:
In Suits at common law, where the value in contro-
versy shall exceed twenty dollars, the right of trial by jury
shall be preserved, and no fact tried by a jury, shall be oth-
erwise reexamined in any Court of the United stats, than
according to the rules of the common law.
U.S. Const. amend. Vil.
The opinion of the Court of Appeals injects learned treatises
nowhere identified in the record, expresses economic opinions
apparently based on those treatises, then weighs its own opinions
against the opinions unanimously expressed by all of the expert wit-
nesses who testified at trial, and finds its own views to be the more
credible. The Court of Appeals simply substituted its own judgment
for that of the jury, contrary to well-settled law.
Likewise, the Court’s rejection of Professor Launey’s expert
opinion fails to comport with the analysis of expert opinion required
by this Supreme Court in Daubert v. Merrill Dow Pharmaceuticals,
Inc., U.S. __, 113 S.Ct. 2786 (1993). Subsequent to trial,
Professor Launey’s evaluation of Transcraft and the methods he used
to reach that valuation were analyzed by Professor Stewart C. Myers
of the Massachusetts Institute of Technology. Professor Myers and
his work were cited in the opinion of the Court of Appeals as prop-
er authorities on the valuation of a corporation. It was Professor
Myers’ conclusion, however, that Professor Launey’s method of val-
17
uation as a “value before less value after,” and his estimate of the
value of Transcraft immediately after the loss, were based upon
sound economic principles. (A copy of the Affidavit of Professor
Stewart C. Myers in Support of Petition for Writ of Certiorari to the
United States Court of Appeals for the Seventh Circuit is reproduced
as Appendix “E” hereto). Thus, although the Court of Appeals dis-
missed the analysis of Transcraft’s expert witness Professor Launey
as “fantastic” and lacking in “common sense,” one of the very
experts cited by the Court of Appeals in its opinion as a proper
authority, Professor Myers, has determined that Professor Launey’s
analysis does comport with sound and accepted economic theory.
The Court of Appeals’ rejection of Professor Launey’s expert
opinion without first engaging in a proper Daubert analysis was
error. Moreover, as demonstrated by the statements of Professor
Myers, a proper application of Daubert by the Court of Appeals
would have led that Court to the logical conclusion that Professor
Launey’s analysis was sound, and that his expert opinion was prop-
erly admissible.’
Daubert concluded that Fed. R. Evid. 702, and not Frve v.
United States, 54 App.D.C. 46, 293 F. 1013 (1923), provided the
proper standard for admission of expert testimony in a federal trial.
Pursuant to the Federal Rules of Evidence, a trial judge must ensure
that any and all scientific testimony admitted into evidence is not
only relevant, but also reliable. The focus of this obligation is found
in Fed. R. Evid. 702, which provides: “If scientific, technical, or
other specialized knowledge will assist the trier of fact to understand
the evidence or to determine a fact in issue. . .” an expert “. . may
testify thereto”.
The Court of Appeals made no effort to employ the analysis
outlined by this Supreme Court in Daubert. At no point did the
Court of Appeals address the specific tests outlined by this Court in
Daubert, those being whether Professor Launey’s testimony rested
upon a reliable foundation, and whether his testimony was relevant
to the issues at hand. Had the Court of Appeals done so, it would
have reached the same affirmative conclusion as the very expert
’ The Seventh Circuit has applied the Daubert analysis to expert economic opin-
ion in the immediate past. Frymire-Brinati v. CPMG Peat Marwick, 2 F.3d 183,
186-87 (7th Cir. 1993).
18
cited by the Court in its opinion as a proper authority, Professor
Myers.
Courts of appeal are required to review the admission of testi-
mony by trial courts only for abuse of discretion. United States v.
Bonds, 12 F.3d 540, 545 (6th Cir. 1993); Mitroff v. Xomox Corp., 797
F.2d 271, 275 (6th Cir. 1986) It is clear in this instance, however,
that the Court of Appeals took no account of the analysis undertak-
en by the District Court below. Te the contrary, the Court of Appeals
engaged in what could only be described as de novo review. Such
action is clearly improper in light of the well established standard of
review which the Court of Appeals was bound by law to apply.
In sum, it was improper for the Court of Appeals to reject the
expert testimony of Professor Launey on the basis of two economic
treatises which were outside the record, never established by author-
itative by any expert witness at trial, and neither the parties nor the
trier of fact ever had any opportunity to consider such treatises or to
subject any proponent of such a treatise to cross-examination.
Further, the Court of Appeals failed to employ or even consider the
analysis set out by this Supreme Court in Daubert for the admissi-
bility of scientific evidence in rejecting the expert testimony of
Professor Launey. Moreover, the Court of Appeals failed to employe
or even address the proper standard of review for the admissibility
of scientific evidence. As a result, the decision and opinion of the
Court of Appeals contravenes the Seventh Amendment of the United
States Constitution. That opinion should be vacated, and the judg-
ment on jury verdict rendered by the District Court should be
affirmed.
THE REFUSAL OF THE DISTRICT COURT TO ADMIT
INTO EVIDENCE THE TRANSCRIPT OF THE WEEKLEY
TRIAL WAS NOT ERROR, OR CONSTITUTED MERELY
HARMLESS ERROR, AND IS NOT A PROPER GROUND
FOR GRANTING A NEW TRIAL ON LIABILITY
The Court of Appeals also granted Attomeys a new trial on the
issue of liability. A new trial on liability was granted for a single rea-
son:
Galvin also argues for a new trial, claiming error in
evidentiary rulings. Only one of the alleged errors is seri-
19
ous enough even to require discussion, but it was a very
serious error which alone requires a retrial on liability. . . .
The serious error was the district judge’s refusal to admit
into evidence the transcript of the Weekley trial.
39 F.3d at 818. The Court of Appeals notes that Attorneys only
offered the Weekley trial transcript after the District Court had
refused to allow them to call a lawyer and expert witness “to testify
to what had gone on at the trial of that case.” /d. The Court con-
cluded that:
The testimony of both witnesses should have been
admitted, or in lieu of their testimony a transcript (a more
accurate record than their recollections, and hence a supe-
rior alternative, as we have said) of the pertinent portions
of the previous trial.
Id. No doubt, the parties are entitled to prove the substance of
what happened at the previous trial. However, the District Court's
refusal to allow Attorneys to use the transcript for such purposes is
not reversible error in this case. Attorneys were permitted to prove
the substance of all testimony presented at the Weekley trial by
means of the narrative summaries and commentary of live witness-
es which the District Court did allow Attorneys to present at the trial
of the present action.
Granted, the voluminous trial transcript itself would be more
detailed and accurate than the witnesses’ summaries, but the prob-
lem with such evidence is that no jury would ever have the patience
to read it or to listen to it being read. Attorneys were actually bene-
fitted by their witnesses being allowed to summarize (and comment
on) the testimony at the previous trial, instead of having to rely on
the cold record.
No principle of appellate review is more settled than the doc-
trine of harmless error. Decisions regarding the admission and exclu-
sion of evidence are peculiarly within the competence of the trial
court and are not subject to reversal on appeal unless those decisions
constitute a clear abuse of discretion. United States v. Socony-
Vacuum Oil Co., 310 U.S. 150, 230-231 (1940); Ellis v. City of
Chicago, 667 F.2d 606, 611 (7th Cir. 1981). A party challenging the
exclusion of evidence has the burden of demonstrating that its sub-
20
stantial rights have been prejudiced by that exclusion. United States
v. Borden Co., 347 U.S. 514, 516 n.5, quoting Fed. R. Civ. P. 61
(1956); Meeker v. Lehigh Valley Railroad, 236 U.S. 434, 439 (1915).
No reversible error occurs when evidence which is denied admission
by one means is subsequently introduced via another means. E/l/is,
667 F.2d at 611.
Fed. R. Civ. P. 61 speaks directly to this issue:
No error in either the admission or exclusion of evidence
and no error or defect in any ruling or order or in anything
done or omitted by the court or by any of the parties is
ground for granting a new trial or for setting aside a verdict
or for vacating, modifying, or otherwise disturbing a judg-
ment or order, unless refusal to take such action appears to
the court inconsistent with substantial justice. The court at
every Stage of the proceedings must disregard any error or
defect in the proceedings which does not affect the sub-
stantial rights of the parties.
(emphasis added). It is clear from the record in this case by the fact that
Attorneys were allowed to present substantial evidence regarding the
Weekley trial that the District Court’s decision to deny admission of the
transcript itself did not “affect the substantial rights of the parties.”
While the District Court in this cause did sustain objections to
certain proffered evidence regarding what occurred during the
Weekley trial, eventually all of the expert evidence presented at the
Weekly trial was presented to the jury. The summarized testimony was,
in fact, more forceful than any reading of the cold record could have
been, especially since the witnesses summarizing the testimony (usu-
ally Attorneys) were permitted to characterize the events which
occuited in the Week/ey trial in the light most favorable to the defense.
In the Court of Appeals, Transcraft clearly argued “harmless
error,” but the Court of Appeals simply ignored this argument.
Instead, the Court made a summary comment about harmlessness in
just two sentences:
The error cannot be deemed harmless in this case. The
question of Galvin’s negligence, and of its impact on the
jury in the Weekleys’ case, was a close one.
21
39 F.3d at 818. This reasoning addresses the wrong argument, one
not made by Transcraft. Transcraft did not argue that any error in
excluding the trial transcript was harmless because other evidence of
malpractice was overwhelming. Rather, Transcraft argued that any
error was harmless because Attorneys were able to introduce the
proffered evidence in another fashion, and so were not prejudiced.
The Court of Appeals simply ignored this argument.
The Court of Appeals opined that there was a “close question of
negligence.” 39 F.3d at 818. Consequently, Attorneys had to show
both a clear abuse of discretion by the District Court (refusal to
allow non-cumulative evidence) and prejudice to substantial rights
(the excluded evidence might have tipped the scale, since the issue
of negligence was a close one).
Absent a clear abuse of the trial court’s discretion, the “close-
ness” of the negligence issue does not matter. In the instant case, the
Court of Appeals ignored Transcraft’s argument that any error was
harmless because the proffered evidence was merely cumulative.
The Court then proceeded to declare that there was no harmless error
because the question of negligence was a close one. Consequently,
the Court of Appeals reversed the District Court for exclusion of
proffered evidence, without ever addressing the question of whether
the District Court had discretion to exclude cumulative evidence.
The Court of Appeals, not the District Court, is in error.
A review of the summary testimony offered by Attorneys and
admitted into evidence at trial illustrates how far the District Court
was willing to go to let Attorneys prove the testimony given at the
previous trial. Attorneys’ witnesses were allowed to summarize the
testimony and the experts’ qualifications, and the summaries were
(not surprisingly) phrased in a manner favorable to the defense.
Kirschner testified that the opinions of “various experts, includ-
ing Lippman” [the Weekleys’ accident reconstructionist], convinced
him and Galvin that there was no defect in the design of the roadway
where the Weekleys crashed, and that “the signage was within nor-
mal standards.” (Tr. 3145). Kirschner also described Lippman’s
qualifications and outlined his testimony (Tr. 614-616).
Kirschner was also allowed to summarize the testimony of the
Weekleys’ metallurgist, Jacobs. Kirschner explained that Jacobs was
7?
“a very good metallurgist, one of the most qualified ones in the
area.” (Tr. 555). Kirschner went on to testify that, based upon
Jacobs’ testimony and his consultation with various experts,
Transcraft was “not going to be able to find one [metallurgist] to say
those welds were decent.” (Tr. 555-556). Kirschner was also allowed
to explain how Jacobs’ testimony effected the testimony and the
decision-making of Transcraft’s expert Hagelthorn. (Tr. 609).
Finally, Kirschner was allowed to describe his consultation with two
doctors regarding the Weekleys’ medical evidence, and their advice
about whether he should retain a medical consultant or obtain an
independent medical examination. (Tr. 3142-3143).
In sum, Attorneys presented a great deal of evidence regarding
not only the substance of the expert opinions in the Weekley trial, but
also regarding the qualifications of those experts, and the effect such
opinions had on Attorneys’ evaluation and handling of the defense
of the Weekley case. Attorneys cited no instance in which they were
not allowed to present to the jury the summary evidence of the
Weekley trial. Putting the cold, voluminous record in front of the jury
would have added nothing of substance to the summarizing testimo-
ny. Any error in excluding such was harmless. Attorneys did not
show either that the District Court committed a “clear abuse of dis-
cretion” by excluding such cumulative evidence, or that their sub-
stantial rights were prejudiced by such exclusion. Absent a showing
of both, the District Court’s judgment must be affirmed.
23
CONCLUSION
On the basis of the arguments and authorities cited herein, the
Petitioners Transcraft Corporation and Cunningham Enterprises
Corporation submit that a Writ of Certiorari should issue.
Respectfully submitted,
Rodney V. Taylor
David J. Theising
CHRISTOPHER & TAYLOR
1219 North Delaware Street
P.O. Box 2850
Indianapolis, Indiana 46206-2850
Telephone: (317) 635-9000
Counsel for Petitioners
Frederic C. Sipe
William L. Schlosser
SIPE PANKOW HAN RUMELY & HEHNER
225 North Delaware Street
Indianapolis, Indiana 46204-2137
Telephone: (317) 269-1999
Co-Counsel for Petitioners
A-1
APPENDIX A
In The
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Nos. 93-3684, 94-2717
TRANSCRAFT, INCORPORATED and
CUNNINGHAM ENTERPRISES, INCORPORATED,
Plaintiffs-Appellees,
v.
GALVIN, STALMACK, KIRSCHNER & CLARK,
FRANCIS J. GALVIN, JR., and ERIC J. KIRSCHNER,
Defendants-Appellants.
Appeal from the United States District Court
for the Southern District of Iilinois.
No. 90-4164-J. Phil Gilbert, Chief Judge.
ARGUED SEPTEMBER 9, 1994-DECIDED NOVEMBER 14, 1994
Before POSNER, Chief Judge, EASTERBROOK, Circuit
Judge, and GORDON, District Judge.”
POSNER, Chief Judge. The appeals in this diversity suit for
legal malpractice raise a variety of issues, mainly but not only of
causation and of computation of damages. The principal plaintiff,
Transcraft Corporation, is manufacturer of flatbed truck trailers. In
1985 a man named Weekley was driving a semitractor hauling a
loaded Transcraft trailer. His wife was in the cab. While Weekley
was attempting to exit from an interstate highway, the rig left the
road and turned over. Weekley’s head was injured in the accident.
His wife broke a couple of vertebrae in her neck, but apparently her
husband's injury was the more serious, unless its gravity has been
exaggerated-of which more later. The Weekleys sued Transcraft,
claiming that the accident had been due to grossly negligent welding
of a key part of the trailer.
“Hon. Myron L. Gordon of the Eastern District of Wisconsin.
A-2
Liberty Mutual, Transcraft’s products-liability insurer, assumed
the defense of the suit and hired Galvin, Stalmack, Kirschner &
Clark, an Indiana law firm, to handle it. A jury awarded the
Weekleys $3.5 million in compensatory damages and $1.25 million
in punitive damages. Liberty then settled the case before appeal by
paying the Weekleys the $3.5 million in compensatory damages that
the jury had awarded them; the Weekleys waived punitive damages
in exchange for Liberty’s not appealing.
Transcraft paid nothing. Both the following year Liberty
refused to renew Transcraft’s insurance, precipitating this suit by
Transcraft against Liberty, the Galvin firm, and the partners (now
former partners, the firm having dissolved) who had handled the
Weekleys’ suit. The claim is that the law firm-and Liberty, by fail-
ing to supervise the firm and in other ways-botched the defense of
the suit and that as a result of having a $3.5 million loss on its record
Transcraft is unable to buy liability insurance on reasonable terms
and has therefore been forced to “go bare”, jeopardizing its survival
and reducing its market value. The jury agreed and awarded
Transcraft $1.5 million in damages (all compensatory) for the
diminution in Transcraft’s value, which is apportioned $1 million to
the law firm and $500,000 to the insurance company. It should not
have apportioned liability for compensatory damages, as we shall
see. Liberty has settled with Transcraft and is not a party to the
appeals.
The defendants (collectively “Galvin”) argue that no rational
jury could have found negligence in the defense of the Weekleys’
suit. We agree that the evidence of negligence was meager and
equivocal, that a number of the alleged acts of negligence were
either nothing of the kind or unrelated to the outcome of the lawsuit,
and that the logic and credentials of the plaintiff's expert witness on
standards of professional competence in litigation were unimpres-
sive. But we do not think that Transcraft’s case was so weak that the
jury can be said to have acted irrationally in finding that there was
negligence which affected the outcome of the Weekleys’ suit.
The plaintiff in a case of malpractice, legal as well as medical,
must prove that the defendant failed to come up to minimum stan-
dards of professional competence, or to higher standards if he repre-
sented himself to be a specialist or to have unusual qualities. Hays v.
Sony Corp. of America, 847 F.2d 412, 419 (7th Cir. 1988); 1 Ronald
A-3
E. Mallen & Jeffrey M. Smith, Legal Malpractice §15.4 (1989). The
malpractice claimant must also prove that as a result of the lawyer’s
incompetence he, the client, lost his case, or paid a larger judgment
than would have been awarded had the defendant performed com-
petently, or suffered some other harm. Picadilly, Inc. v. Raikos, 582
N.E.2d 572, 338, 344 (Ind. 1991); Cornett v. Johnson, 571 N.E.2d
572, 575 (Ind. App. 1991); Winskunas v. Birnbaum, 23 F.3d 1264
(7th Cir. 1994); Mitchell v. Transamerica Ins. Co., 551 S.W.2d 586
(Ky. App. 1977). The evidence of negligence in this case consists of
a litany of alleged mistakes made by Galvin in the handling of the
Weekleys’ lawsuit. First, it is argued, Galvin should have moved for
a change of venue, from Indiana to Illinois. The accident had
occurred in Ohio. The Weekleys live in Indiana and brought their
suit there. Transcraft is an Illinois corporation, and communication
between it and Galvin would have been easier had the lawsuit been
conducted in a court nearer its headquarters. This is a trivial theory
of legal malpractice, and should not have been allowed to go to the
jury. Venue was proper in the Northern District of Indiana, where the
Weekleys reside and Transcraft has its largest dealership. A motion
to transfer the case to Illinois would almost certainly have failed,
since Illinois could not be considered on balance more convenient
for the parties, the lawyers, and the witnesses; and the legal standard
for the grant or denial of a motion for a change of venue is the bal-
ance of conveniences. Cote v. Wadel, 796 F.2d 981, 984-85 (7th Cir.
1986). It is not malpractice to fail to make a motion that has little
chance of being granted and if granted would confer a merely spec-
ulative benefit on the movant. So courts long have held with refer-
ence to motions for change of venue. Nave v. Baird, 12 Ind. 318, 319
(1859); Woodruff v. Tomlin, 616 F.2d 924, 931 (6th Cir. 1980): |
Mallen & Smith, supra, § 15.5, p. 874 n. 13. Judges ought not by
taking an expansive view of the tort of legal malpractice create
incentives for lawyers to engage in busy “motion practice” in order
to insulate themselves from legal liability. Judges ought not, in other
words, encourage the practice of “defensive law” in the bad sense in
which the term “defensive medicine” is used of physicians who feel
impelled by threat of malpractice liability to order tests that cost
more than their expected benefits.
Another dubious allegation of professional misconduct is that
Galvin had a conflict of interest because of the firm’s prior repre-
sentation of the Weekleys. It was in an unrelated matter but in the
course of it Galvin had learned about the unsound condition of Mrs.
A-4
Weekley’s neck prior to the accident. How this alleged conflict of
interest could have hurt Transcraft is difficult to fathom. Only the
Weekleys could have been hurt. Or so it seems. But Transcraft
argues that since the knowledge of Mrs. Weekley’s pre-existing con-
dition had been obtained in the course of legal representation, Galvin
was inhibited in cross-examining Mrs. Weekley about the extent of
the injuries that she suffered in the trailer accident. Even if this is
true, its relevance to the litigation is unclear. For suppose that the
accident broke Mrs. Weekley’s neck only because the neck was
abnormally weak; this could not make a straw of difference to dam-
ages (let alone liability); the “eggshell skull” rule makes the tortfea-
sor take his victim as he finds him. Ficken v. Alton & Southern Ry.,
625 N.E.2d 1172, 1178 (Ill. App. 1993); Pace v. Ohio Dept. of
Transportation, 594 N.E.2d 187, 188 (Ohio Ct. Cl. 1991); Neihus v.
Liberio, 973 F.2d 526, 528 (7th Cir. 1992); cf. Defries v. State, 342
N.E.2d 622, 630 (Ind. 1976). We say this with confidence although
we have not been able to discover what state’s substantive law was
believed to furnish the rule of decision in the Weekley’s lawsuit.
Recall that while the accident occurred in Ohio, the plaintiffs were
domiciled in Indiana and the defendant is an Illinois corporation.
Probably Ohio law applied, Rice v. Nova Biomedical Corp., No. 93-
1831, slip op. at 11-12 (7th Cir. Oct. 25, 1994), but it hardly matters,
because the parties have not made an issue of it and because the
eggshell-skull rule is in force in all three states having some con-
nection to the suit, as are the other legal doctrines applicable to the
Weekley’s suit.
Still another questionable charge is that Galvin impaired the
defense of the Weekleys’ suit by failing to give timely notice to
Transcraft of the plaintiffs’ reinstatement of their claim for punitive
damages. Since Liberty’s policy did not protect Transcraft against the
consequences of willful misconduct, of which an award of punitive
damages would be one, Galvin, whose primary loyalty was to Liberty,
was required te notify Transcraft of any claims for punitive damages
so that Transcraft could hire a lawyer to protect its uninsured interest.
But since Liberty in the end paid the whole judgment, Transcraft was
actually benefited by not being notified of its exposure to punitive
damages-it saved the expenses of hiring its own lawyer.
Unless that lawyer would have taken steps that would have
avoided the award of punitive damages. Although the Weekleys
dropped their claim of punitive damages in exchange for Liberty’s
A-5
not appealing from the award of compensatory damages, had the
jury not awarded punitive damages the Weekleys would have lacked
this bargaining chip and would undoubtedly have accepted a reduc-
tion in the award of compensatory damages in order to avoid jeop-
ardizing the award if Liberty appealed. And then the loss of
Transcraft’s record would have been smaller.
Whether a different lawyer could have prevented the award of
punitive damages merges with the question whether Galvin failed to
make adequate efforts to rebut the plaintiffs’ evidence that
Transcraft’s welders were so greatly at fault as to justify an award of
punitive damages against their employer. The Transcraft trailer that
injured the Weekleys was connected to the semitractor by what is
called a “fifth wheel plate,” and the Weekleys contended that the
accident had been caused by the plate’s breaking because it had been
improperly welded. There was evidence that Transcraft’s welders, to
save time, would weld over bad welds rather than, as they should
have done, use a grinder or air arc to remove the weld and then redo
it, and that this carelessness was condoned by the welders’ supervi-
sors. Galvin failed to retain an independent metallurgist to evaluate
Transcraft’s welding practices, failed to call witnesses from within
Transcraft who could have testified to the care with which the weld-
ing was inspected by the company’s welding inspectors, failed to
cross-examine the welders who testified for the Weekleys about their
lack of care, and also failed to present evidence, which Transcraft
argues could have been obtained, to prove that the accident could not
have been a consequence of the failure of the fifth wheel plate but
must have been due to Mr. Weekley’s taking the exit ramp at too
high a speed. Most of these so-called failures are spurious. The case
for Transcraft was hopeless. Galvin was advised by an engineer
whom Transcraft itself had advised him to consult on the matter that
no reputable metallurgist would give testimony helpful to
Transcraft’s case. The theory that the accident had been caused by
speeding was greatly undermined by experi evidence that Weekley
had been driving at a speed of only 25 miles an hour on a stretch of
road on which he could have driven safely at a speed of 61 miles per
hour.
Maybe an unscrupulous lawyer could have thrown enough sand
in the jury’s eyes to avert a judgment for the Weekleys, or at least an
award of punitive damages, but unwillingness to do so is not evi-
dence of malpractice. Refusal to violate professional ethics-or even
A-6
to approach as near to the line as humanly possible-is not profes-
sional misconduct. Stricklan v. Koella, 546 $.W.2d 810 (Tenn. App.
1976). A scrupulous lawyer, a lawyer who takes Law Day rhetoric
seriously, who sincerely believes that he has a dual duty, to his client
and to the law, and acts on his belief,may lose some clients to his less
scrupulous competitors but he should not be deemed to be courting
a tort judgment.
Galvin’s failure to cross-examine the welder witnesses may
seem particularly questionable. But Transcraft in the malpractice
suit failed to present any evidence concerning what they would have
said on cross-examination in the trial of the Weekleys’ suit that
might have warded off the award of punitive damages.
That leaves only one significant allegation of possibly action-
able malpractice: Galvin’s failure (strangely mirrored in the present
case, as we shall see) to make a serious effort to knock down Mr.
Weekley’s compensatory damages. The only medical witnesses to
testify were witnesses for the plaintiffs. They testified that as a result
of the accident Weekley had suffered a significant loss of brian tis-
sue, had undergone a personality change, could no longer drive, no
longer organize or plan anything, and was “disabled from competi-
tive employment.” This may well have been a considerable exag-
geration. Galvin had in hand but did not introduce evidence that
Weekley had faked seizures while in the hospital in order to induce
a visit from his wife. Galvin did not, as it was entitled by the Federal
Rules of Civil Procedure to do, retain an independent medical expert
to examine Weekley. This was careless. The extent of a plaintiff's
injuries, short of death, should never be taken for granted, as this is
a particularly rich area for litigation fraud. Only a few months after
the trial, Weekley applied for a West Virginia driver’s license, certi-
fying that he had no major impairments. He got the license. Video
surveillance conducted by Transcraft in 1993, in connection with the
present suit, reveals Mr. Weekley driving a car and going about his
business in apparent normality. Of course 1993 is not 1989, the date
of the Weekley trial. But adults do not grow new brain tissue.
Galvin argues that the videotape is not of the real Weekley.
Maybe so; the tape is indistinct; but the jury was entitled to reject the
imposture theory and conclude that had the Galvin firm been on its
toes it would have gathered convincing evidence that Weekley had
not been so seriously injured as he has persuaded the jury that he
|
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3
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A-7
was. Nor is it a compelling argument that for Galvin to have dispar-
aged Weekley’s injuries would have alienated the jury. That would
depend, in part anyway, on the actual severity of those injuries,
which Galvin failed to make any effort to ascertain. If Weekley was
lying about his injuries, unmasking his lies would not make the jury
love him all the more. So at least the jury in the malpractice case
could reasonably have concluded; and presumably one jury is a pret-
ty good judge of the probably reaction of another jury. A reasonable
jury could have found that a competent trial lawyer in Galvin’s situ-
ation would have explored Weekley’s condition in greater depth and
as a result of doing so would have obtained evidence that would
have persuaded the injury to bring in a lower verdict. Therefore
Galvin was not entitled to judgment notwithstanding the verdict on
the issue of liability.
Galvin also argues for a new trial, claiming error in evidentiary
rulings. Only one of the alleged errors is serious enough event to
require discussion, but it was a very serious error which alone
requires a retrial on liability. An alternative basis for a new trial, not
ciearly argued, hence possibly waived, but in any event unnecessary
to consider, is that the jury’s verdict may have been based on alle-
gations of malpractice that should not have been submitted to the
jury, such as Galvin’s failure to move for a change of venue.
Wilmington Star Mining Co. v. Fulton, 205 U.S. 60, 79 (1907):
Virtual Maintenance, Inc. v. Prime Computer, Inc., 11 F.3d 660, 667
(6th Cir. 1993).
The serious error was the district judge’s refusal to admit into
evidence the transcript of the Weekley trial. A trial transcript is
hearsay (though sometimes admissible, under an exception to the
hearsay rule, Fed. R. Evid. 804 (b)(1)) if offered to prove the truth
of tstimony presented at the tria!. But that was not the purpose for
which Galvin wanted to put the transcript of the Weekley trial into
evidence. Galvin wanted to show that the testimony of the plaintiffs’
witnesses, whether truthful or not, was so extensive and so damag-
ing to Transcraft that it was most unlikely that anything Galvin could
have done would have succeeded in obtaining a judgment for the
Weekleys or even in deflecting an award of punitive damages. Such
use of the transcript of the underlying trial is not only routine in legal
malpractice suits; it is also far superior to having the participants in
the trial testify to their recollections; and its admissibility for this
purpose, that is, for establishing the strength (or weakness) of the
A-8
plaintiff's case, the case he claims the lawyer botched to his detri-
ment, cannot be questioned. Walker v. Bangs, 601 P.2d 1279, 1283-
84 (Wash. 1979); 2 Mallen & Smith, supra, §27.20; cf. Piccadilly,
Inc. v. Raikos, supra, 582 N.E.2d at 344; Honeywell v. American
Standards Testing Bureau, Inc., 851 F.2d 652, 656 (3d Cir. 1988).
The error cannot be deemed harmless in this case. The question of
Galvin’s negligence, and of its impact on the jury in the Weekleys’
case, was a close one.
The issue is fogged up a bit by the fact that Galvin’s lawyer
attempted to place the transcript of the accident case in evidence
only after the judge refused to allow him to call a lawyer and an
expert witness to testify to what had gone on at the trial of that case.
The judge refused on hearsay grounds to let the lawyer testify,
though the lawyer was not attempting to testify to the truth of any-
thing. The judge refused to let the expert testify because he had not
been listed as a potential expert witness before trial. But he was not
being asked to testify as an expert. He was being asked to testify to
what he had testified in the previous trial. The testimony of both wit-
nesses should have been admitted, or in lieu of their testimony a
transcript (a more accurate record than their recollections, and hence
a superior alternative, as we have said) of the pertineat portions of
the previous trial.
So there must be a new trial on liability-and on damages as
well? Galvin argues that the $1.5 million that the jury awarded for
the reduction in Transcraft’s market value is not supported by the
evidence. This is certainly true. In fact the theory of damages that
Transcraft was allowed through its economic witness to present to
the jury was a fantastic one, revealing on the part of the witness
(George I auney) not only a lack of familiarity with the relevant
principles of corporate valuation (concerning which there is an
extensive scholarly literature illustrated by Clifford W. Smith, Jr.,
The Modern Theory of Corporate Finance (2d ed. 1990), and
Richard A. Brealey & Stewart C. Myers, Principles of Corporate
Finance (4th ed. 1991)) but also a lack of common sense. The theo- |
ry was that the $3.5 million loss although fully insured had prevent-
ed Transcraft from obtaining products liability insurance and there-
fore destroyed its value as a going concern. The jury was asked to
award Transcraft the difference between that value and its value on
the auction block.
i i aa a
A-9
Now to begin with, the counterfactual world that provides the
benchmark for assessing damages (Nicolet Instrument Corp. v.
Lindquist & Vennum, 34 F.2d 453, 456-57 (7th Cir. 1994)) is not one
in which Transcraft would have sustained no loss on its record as a
consequence of the accident to the Weekleys. It is wholly improba-
ble, on the evidence presented in both the Weekleys’ case and the
malpractice case, that any lawyer could have obtained a judgment in
Transcraft’s favor. At most, Galvin’s professional negligence result-
ed in a higher judgment for the Weekleys than would otherwise have
been rendered. The issue of damages in this case is what difference
that increment of tort damages had on Transcraft’s value.
Even if this essential point is disregarded, it is false that
Transcraft could not have obtained products liability insurance in the
wake of the Weekley judgment and ensuing settlement. The evidence
is unquestioned that is could have obtained such insurance, only ata
higher price and with a larger deductible. The higher price would be
an allowable item of damages, assuming that its causal relation to
the damages increment in Weekley plausibly attributable to Galvin’s
negligence were shown, which was not done. And the larger
deductible too. It would have imposed an expected (that is, a proba-
bilistic rather than certain) cost on Transcraft measured by the
amount of the increase in the deductible times the probability that
Transcraft would be required to pay a claim of that amount, all dis-
counted to present value. Suppose that the deductible would have
been increased from $100,000 to $200,000 and that there is a 10 per-
cent probability that over some interval of time Transcraft would
have had to pay a $200,000 claim. Then the expected cost of the
increase in the deductible due to Galvin’s negligence would be
$10,000 ($200,000 - $100,000 = $100,000 x .10 = $10,000), and it
would be discounted to present value using an appropriate interest
rate and some assumption concerning when the claim was likely to
be made and paid.
No such effort at a realistic calculation of damages was attempt-
ed, perhaps because when Liberty cancelled its insurance Transcraft
decided not to buy a new insurance policy at the higher rate and with
the diminished coverage owing to the larger deductible, but instead
to self-insure. Assuming that this was a reasonable business decision
precipitated by Galvin’s negligence in failing to minimize the loss
resulting from the Weekley accident and causing (if, as a result of
that failure, the incremental damages in the Weekley case for which
A-10
alone Galvin may have been responsible did cause) Liberty to refuse
to renew Transcraft’s policy on its previous terms, the issue becomes
the consequences of the decision to self-insure. At a first cut, the
consequences are simply that Transcraft saved itself the expense of
paying insurance premiums. Economists are puzzled why corpora-
tions ever buy liability insurance, since limited liability protects the
shareholders (at least those who hold reasonably diversified portfo-
lios) from the consequences of a disaster that might overtake the cor-
poration as a result of a tort judgment. Eljer Mfg., Inc. v. Liberty
Mutual Ins. Co., 972 F.2d 805, 809 (7th Cir. 1992). But they do, so
self-insurance must often impose costs, and possibly it did in this
case (Transcraft is a family corporation and maybe the family’s
entire wealth is sunk in it); but of that there is no evidence at all.
The evidence that Transcraft’s value as a going concern has
been destroyed, so that if the family that owns it decided to sell it all
they could get was scrap value, consisted solely of the expert’s say-
so, and was unworthy of belief. Many corporations self-insure. Any
such corporation that bought Transcraft would not refuse to pay
going-concern value simply because Transcraft was uninsured, since
if Transcraft were insured this hypothetical purchaser would upon
purchasing it cancel the insurance. A purchaser that was not a self-
insurer might not pay as much for Transcraft as it would if Transcraft
had insurance, but it does not follow that it would pay only scrap
value. It would evaluate the risk of liability and the cost of extend-
ing its insurance policy on its existing operations to cover it. The
costs might be slight. Scrap value is actually a peculiarly inapt
benchmark in this instance, since it is what the judgment creditor in
the hypothetical case in which Transcraft is hit by a huge tort judg-
ment for which it has no insurance would levy on, leaving the own-
ers of Transcraft with nothing-or at least not with the scrap value of
its physical assets.
Even if Transcraft were rendered unsalable at any price by
Galvin’s negligence (for want of a nail the kingdom was lost), it
would not follow that it had been harmed to the extent of its value as
a going concern. There was no evidence that the family which owns
Transcraft plans to sell it. Even so, impairment of the marketability
of an asset reduces its value, since sale value is a dimension of value
event when hypothetical. A person who owns a house that he does
not intend to sell would still be distressed to be told that he can never
sell it for more than its value in demolition. The right of sale, a valu-
A-11
able option even if never exercised, is particularly valuable to fami-
ly-owned corporations, many of which are sold when the founder
dies or retires. But the loss of a purely hypothetical sale value of
Transcraft would be another of those probabilistic losses-like the
possible tort claim that would be more costly because Transcraft
would have had a larger insurance deductible had it not decided to
self-insurer-that has to be discounted by its probability in order to
establish a reasonable estimate of the actual cost. The costs of a 10
percent chance of losing $1 million is not $1 million. The jury
should have been asked, at a minimum, to estimate by how much the
sale value of Transcraft was diminished by its lack of insurance and
how likely it is that the owners would have sold the company at
some time over some reasonable interval, say at some time within
ten years following the decision to self-insure. This was not done. At
the time of trial, three of the ten years had passed, with no indication
of an imminent sale.
What remains is some possibility that Galvin’s negligence
caused Transcraft to have a worse Joss record by some as yet unde-
termined amount, and that this worse loss record in turn reasonably
induced Transcraft to self-insure, and that this decision, although as
yet it appears only to have saved Transcraft money (for there is no
evidence that between the decision to go bare in 1990 and the trial
in 1993 Transcraft paid out in claims more than it saved in insurance
premiums), will in the long run hurt Transcraft more than it helps it,
by reducing the sale value of the company or the risk-adjusted value
of the owners’ wealth. The chain of speculation that connects
Galvin’s negligence to a monetizable loss to Transcraft is a long and
fragile one-and may be longer and more fragile by the time the case
is retried. But we are not prepared to say that no reasonable jury
could find that the chain held and assign a rational if inherently
somewhat speculative value to the loss caused by it. This jury, how-
ever, was not given the materials for a responsible evaluation.
The criticisms that we have made of Transcraft’s evidence of
damages go beyond anything found in the defendant’s brief, and if
given a change Transcraft might be able to rebut them persuasively.
But the defendants said enough in their brief, to which Transcraft
had a full opportunity to respond, to persuade us that the damages
were calculated improperly. We have gone further in our analysis of
damages in an effort to assist the parties and the district judge on
remand in taking steps to assure the rational calculation of damages,
A-12
a phase of litigation about which we have repeatedly expressed con-
cern, most recently in Nicolet Instrument Corp. v. Lindquist &
Vennum, supra, 34 F.3d at 457. At the retrial, Transcraft will have a
full opportunity to present additional evidence of injury and to deal
with our criticisms.
For the further guidance of the District court on remand, we
point out that the general instruction on damages, while not incor-
rect, was confusing, or at least incomplete. The jury was told that
“when personal property such as a business is damaged or partially
destroyed the measure of damages is the difference between the fair
market value of the property immediately before the damage and the
fair market value of the property immediately after the damage.”
This formulation obscures the principle that where, as in this case.
the trial is held long after the damaging event occurs, intervening
events may show that any depression in market value immediately
after the damaging event (the settlement with the Weekleys) was
transient and inflicted no harm on the plaintiff, in which event the
plaintiff is not entitled to damages. Chronister Oil Co. v. Unocal
refining & Marketing, 34 F.3d 462, 465 (7th Cir. 1994).
We also remind the judge and the parties that the issue is not
whether Transcraft would have to pay more for products liability
insurance today than when it was insured by Liberty. It is whether it
would have to pay more than a similar company not burdened by
having the settlement with the Weekleys on its loss record (if the set-
tlement is still on its loss record, for there is evidence that the insur-
ers wipe the slate clean after five year). Galvin is not responsible for
whatever general increase in insurance prices has occurred since the
settlement, an increase, that is, that Transcraft would have had to pay
regardless of its loss experience.
A further point to note is that the verdict form was incorrect.
The jury should not have been directed, or permitted, to assess com-
pensatory damages separately against Liberty and the other, the
lawyer, defendants. (Recall that it assessed $500,000 against Liberty
and $1 million against the lawyer defendants.) Where, as in this
case, the injury to the plaintiff is indivisible, the jury should be asked
to assess the damages caused by the injury, unless (as was not the
case here) the jury is asked to assess the relative fault of the defen-
dants for purposes of contribution among joint tortfeasors. E.g.,
Douglass v. Hustler Magazine, Inc.,. 769 F.2d 1128, 1146 (7th Cir.
Se ne ETE
A-13
1985). As is typical in cases in which, despite the clear rulings by
this court in Douglass and other cases, the incorrect form is used, we
do not know whether the jury thought the total damages $1.5 mil-
lion, or, as Galvin argues, $1 million, and merely wanted Liberty to
be responsible for half that amount. We trust that the correct form
will be used at the retrial. And since a plaintiff is entitled to only one
recovery when it seeks damages for the same harm from multiple
defendants, Bosco v. Serhant, 836 F.2d 271, 280 (7th Cir. 1987),
Galvin will be entitled to a “credit” of $500,000 against any judg-
ment that Transcraft obtains against it. What rights if any Galvin and
Liberty might have against each other is a question on which we
express no view.
We reverse the judgment and remand for a new trial on liabili-
ty and damages. And with one last reminder to the parties and the
district court; for the reasons explained in this opinion, certain items
of alleged negligence should not be submitted to the jury on retrial
because it is plain either that they do not amount to negligence or
that they cannot reasonably have been thought to have affected the
outcome of the Weekleys’ case.
REVERSED AND REMANDED,
WITH INSTRUCTIONS.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
A-14
APPENDIX B
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF ILLINOIS
TRANSCRAFT, INC., a Corporation,
and CUNNINGHAM ENTERPRISES, INC.,
a Corporation, JUDGMENT IN
Plaintiffs, A CIVIL CASE
V.
LIBERTY MUTUAL INSURANCE COMPANY,
INC., a Corporation GALVIN, STALMACK,
KIRSCHNER & CLARK, a Partnership, CASE NUMBER:
FRANCIS J. GALVIN, JR., Attorney at 90-4164
Law, and ERIC L. KIRSCHNER, Attorney at Law,
Defendants.
& Jury Verdict. This action came before the Court for
a trial by jury. The issues have been tried and the jury
has rendered its verdict.
[J] Decision by Court. This action came to trial or hear-
ing before the Court. The issues have been tried or
heard and a decision has been rendered.
IT IS ORDERED AND ADJUDGED that judgment is entered
in favor of the plaintiffs, Cunningham Enterprises Corporation and
Transcraft Corporation against defendant, Liberty Mutual Insurance
Company. It is further ordered that without taking into consideration
the questions of reduction of damages, it is found that the total
amount of damages suffered by the plaintiff’s is $500,000.00 item-
ized as follows: defendants claims for mitigation and/or set off, the
plaintiff damages shall be reduced by $0.00. It is further ordered that
the plaintiff's recoverable damages are assessed in the sum of
$500,000.00
It is further ordered that judgment is entered in favor of the
plaintiffs, Cunningham Enterprises Corporation and Transcraft
Corporation against defendants, Frank Galvin, Eric Kirschner, and
Galvin, Stalmack, Kirschner & Clark, a law partnership in the
amount of $1,000,000.00.
A-15
It is further ordered that judgment is entered in favor of the
counter-plaintiff, Liberty Mutual Insurance Company and against
the counter-defendants, Cunningham Enterprises Corporation and
Transcraft Corporation in the amount of $76,492.00.
August 27, 1993 \s\STUART J. O'HARE, CLERK
Date Clerk
\s\J. PHIL GILBERT \s\K. JANE REYNOLDS
APPROVED: (By) Deputy Clerk
A-16
APPENDIX C
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
December 28, 1994
Before
Hon. Richard A. Posner, Chief Judge
Hon. Frank H. Easterbrook, Circuit Court
Hon. Myron L. Gordon, District Judge’
TRANSCRAFT, INCORPORATED
AND CUNNINGHAM
ENTERPRISES, INC.,
Plaintiffs-Appellees,
Nos. 93-3684, 94-2717 v.
GALVIN, STALMACK,
KIRSCHNER & CLARK,
FRANCIS J. GALVIN, JR., AND
ERIC L. KIRSCHNER,
Defendants-Appellants.
ORDER
On December 8, 1994, plaintiffs-appellees filed a petition for
} Appeals from the United
' States District Court for
' the Southern District of
' Illinois.
' No. 90-4164
} Hon. J. Phil Gilbert, Chief
| Judge
=_—_ we wow wow ow
rehearing with suggestion for rehearing en banc. All the judges on
the original panel have voted to deny the petition, and none of the
active judges has requested a vote on the suggestion for rehearing en
banc. The petition is therefore DENIED.
"Hon. Myron L. Gordon, of the Eastern District of Wisconsin, sitting by designation.
'
A-17
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
TRANSCRAFT, INC.., et al.,
Plaintiffs,
VS. NO. CV 90-4164-JLF
LIBERTY MUTUAL INSURANCE
COMPANY, et al.
i
Defendants.
ORDER
FRAZIER, Magistrate Judge:
The parties have now briefed the choice of law questions at the
Court’s request. Plaintiffs contend that Illinois law governs their
claims against Liberty Mutual but that Indiana law governs their
claims against the attorney defendants. Liberty mutual argues that
Indiana law governs all claims, and the attorney defendants argue
that Illinois law governs all claims.
In a diversity case, the Court applies the choice of law rules of
the forum state (Illinois) to determine which state’s substantive law
applies. Klaxon v. Stentor Electric Mgf. Co., 313 U.S. 487 (1941). In
Illinois, the choice of law rules differ depending upon the nature of
the dispute. Plaintiffs have alleged seven caused of action (Doc. No.
7). They characterize their claims against Liberty Mutual as contract
claims, stating that all rights and duties between those parties origi-
nated with a products liability insurance policy issued by Liberty
Mutual to Transcraft (Doc. No. 58). Liberty Mutual construes the
claims against it as tort claims. Plaintiffs characterize their claims
against the attorneys as tort claims, but they are legal malpractice
claims, which are now contract claims in Illinois. Collins v. Rynard,
A-18
No. 70325, 1991 IILLEXIS 104 (Ill. Oct. 31, 1991). Presumably,
Illinois will now apply contract choice of law rules to legal mal-
practice claims.
Claims Against Liberty Mutual
The allegations against Liberty Mutual center on its perfor-
mance of contractual and fiduciary duties arising from its status as
plaintiffs’ insurer under the terms of a products liability insurance
contract. Liberty Mutual’s obligations arose not because of any
social duty to protect the public against an unreasonable risk of harm
but from the contractual relationship created by the insurance poli-
cy. The parties have not cited Illinois cases specificaily dealing with
choice of law in products liability insurance contracts, so the choice
of law principles generally applied in Illinois contract cases will be
applied to plaintiffs’ claims against Liberty Mutual.
In Illinois, a contract dispute obligates the Court to apply “the
law either of the state with the most significant relationship or of the
state where performance is to occur.” United Thermal Industries v.
Asbestos Training and Employment, 920 F.2d 1345, 1348 (7th Cir.
1990). Where there are competing relationships between different
states, the place of performance can be determinative. /d.
Transcraft is a Delaware corporation that does business in
Illinois only. Liberty Mutual is a Massachusetts corporation with its
principal office in Massachusetts. Liberty Mutual is registered to do
business in Illinois and sold the products liability insurance contract
to plaintiffs through its agents in Illinois. Transcraft manufactured
and Liberty Mutual insured a flatbed trailer that was involved in a
roll over accident in Ohio. The driver, Mr. Weekley, brought a prod-
ucts liability suit in Indiana. Liberty Mutual hired Francis Galvin
and Erick Kirshner to defendant that suit. Plaintiffs’ allegations are
that Liberty Mutual failed to properly represent Transcraft in the
Weekley suit and a companion property damage case. More than a
year after trial, Liberty Mutual notified plaintiffs that their products
liability insurance would not be renewed.
Because plaintiff's allegations primarily challenge Liberty
Mutual’s performance of its contractual obligations, Indiana, the
place of performance, has the most significant relationship to this
A-19
dispute. Indiana law will be applied to plaintiffs’ claims against
Liberty Mutual.
Claims Against Attorney Defendants
Plaintiffs’ claims against the law firm of Galvin, Stalmack,
Kirshner & Clark, and Francis Galvin and Erick Kirshner, individu-
ally, are legal malpractice claims. The claims address only the rep-
resentation provided to Transcraft in the Weekley lawsuit. The
claims pertain to the adequacy of trial preparation, the sufficiency of
the attorneys’ communications with their client, and the validity of
litigation decisions regarding settlement and punitive damages.
Liberty Mutual’s alleged damages include legal fees spent to obtain
separate counsel, expenses of self-insurance and re-insurance, and
loss of business value.
Neither party had directed the Court to an Illinois case address-
ing choice of law rules for legal malpractice claims. Accordingly, the
Court will apply the substantive law “either of the state with the
most significant relationship or of the state where performance is to
occur.” /d.
Galvin and Kirshner’s law firm is located in Indiana, and they
are licensed to practice in that state. Neither attorney is licensed to
practice in Illinois. The Weekley case was tried in Indiana where
judgment was entered. Although most of plaintiffs’ damages arose
in Illinois, the Court cannot conclude that Illinois has the most sig-
nificant relationship to a claim pertaining to legal services provided
by Indiana lawyers in Indiana. Indiana law will be applied to
Transcraft’s claims against the attorney defendants.
IT IS SO ORDERED.
DATED: May 8, 1992.
\s\ Philip M. Frazier
PHILIP M. FRAZIER
UNITED STATES MAGISTRATE JUDGE
A-20
NO.
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1994
TRANSCRAFT CORPORATION, and
CUNNINGHAM ENTERPRISES
CORPORATION,
Petitioners,
versus
LIBERTY MUTUAL INSURANCE
COMPANY, INC., a Corporation,
GALVIN, STALMACK, KIRSCHNER &
CLARK, a Partnership,
FRANCIS J. GALVIN, JR., Attorney
at Law, and
ERIC L. KIRSCHNER, Attorney at Law,
Respondents.
AFFIDAVIT OF PROFESSOR STEWART C. MYERS IN
SUPPORT OF PETITION FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS FOR THE
SEVENTH CIRCUIT
I, STEWART C. MYERS, being first duly sworn, declare and
state that the following facts and matters are true and that I have per-
sonal knowledge thereof:
1. | am the Gordon Y Billard Professor of Finance at the
Massachusetts Institute of Technology and I am Director of the
International Financial Services Research Center at The
Massachusetts Institute of Technology. A copy of my curriculum
vitae is attached hereto as Exhibit A.
2. One reason for remand of this case by the appellate court is
that “damages were calculated improperly.” | have considered the
appellate court’s concerns and examined how damages were esti-
sitet ANB it. is crs eres
A-21
mated by the expert witnesses. For this purpose I assumed that lia-
bility for malpractice was established.
3. The appellate decision says that the jury did not have the
“materials for a responsible evaluation” of damages. It sees at least
two holes in the methods used to estimate damages; that is, the jury
was not offered specific answers to the following questions:
a. What is the “but for” world? Absent malpractice, would
Transcraft have won the Weekley case outright? If it would
have lost the case anyway, could it have avoided punitive
damages and retained its access to acceptably priced insur-
ance? There are several but-for possibilities.
b. What specific costs were absorbed by Transcraft when it self-
insured? How are the effects of malpractice and loss of accept-
ably priced insurance separated from the other business and
economic factors affecting the value of the company?
4. These are fair questions for an expert witness. The jury was
not asked to answer such questions directly, however. It was asked to
determine damages under Indiana law, which | understand defines
damages as “the difference between the fair market value of the prop-
erty immediately before the damage and the fair market value of the
property immediately after the damage,” with fair market value
defined by the usual willing buyer, willing seller standard.
5. | was asked to review the expert valuation testimony to see
whether the jury had before it sufficient evidence or range of expert
opinion to arrive at a judgment of damages consistent with the defin-
ition just quoted. | have not conducted a fresh study or estimate of
damages.
6. The court strongly criticized Prof. George Launey, who testi-
fied for Transcraft. He stated that loss of insurance reduced the imme-
diate value of Transcraft to the liquidation value of its assets, because
the company could not be sold as a going concern without insurance,
and with a jury award of punitive damages hanging over it.
Launey was focusing on the market value of Transcraft before
and after the loss of insurance. He was estimating the “after” price
A-22
in a hypothetical sale. His position made sense if the costs to
Transcraft of self-insuring, or of buying insurance on unfavorable
terms, were large enough to push going-concern value below liqui-
dation value. These costs would include those mentioned in the
appellate decision, and also the costs a rational buyer would incur to
investigate Transcraft before making an offer. '
7. Whatever one thinks of Launey’s arguments or calculations,
he did estimate market values before and after the malpractice and
loss of insurance. Cross-examination did not challenge him on this.
In fact all the experts concentrated on before versus after valuations.
8. The jury may have relied more on the analysis and opinions
of the defense experts, since the jury’s award to Transcraft was far
below Launey’s figures. Stewart Zimmerman, who testified for the
attorney defendants, said that Transcraft was worth $250,000 less
immediately after loss of insurance because the company was “just
a little riskier.” (Tr. 3182) The jury may have worked up from this
number? (and from Zimmerman’s subsequent use of $700,000 per
year as a reserve for self-insurance—much more than Transcraft had
been paying for insurance before loss of the Weekley case), rather
than down from Launey’s.
9. Both Zimmerman and Wayne Grace, Liberty Mutual’s
expert, insisted that Transcraft be valued as a going concern, so the
jury was given a clear alternative to Launey’s use of liquidation
value.
'Transcraft's loss of the Weekley case, with punitive damages imposed, would
have put potential buyers at a severe information disadvantage. The net value of the
company depended on how many welds on other trailers were defective; each
defective weld was a potential lawsuit for which the buyer would be responsible.
The “willing sellers” (Transcraft’s owners) would have had strong incentives to
conceal or downplay problems, so their assurances could not be credible. The costs
to an outside buyer of obtaining accurate information may have been large enough
to prevent any sale at a price greater than a verifiable lower bound, e.g. liquidation
value. Economic theory predicts such market breakdowns when information asym-
metries are large and information is sufficiently costly. See G.A. Akerlof, “The
Market for ‘Lemons:’ Quality and the Market Mechanism,” Quarterly Journal of
Economics 84, 488-500 (1970), and S.C. Myers and N.S. Majluf, “Corporate
Financing and Investment Decisions When Firms Have Information Investors Do
Not Have,” Journal of Financial Economics 13, 187-221 (194).
?Zimmerman estimated a $500,000 loss under an “income method,” but cut this
figure in half by averaging values based on income and on book value. It would
| have been reasonable to work up from $500,000.
*But at Tr. 2945-2946 Grace seems to contemplate sale at liquidation value.
A-23
10. Zimmerman testified that Transcraft was worth more in
1992 than before loss of insurance. (Tr. 3193, 3204) Grace said that
Transcraft was worth a little less in 1992 than in 1989 or 1990.
But value can increase (or fall) in spite of loss of insurance if
other good (or bad) things happen to the business. Zimmerman’s and
Grace's 1992 valuations do not show the immediate value change,
and do not isolate the effects of malpractice and/or loss of insur-
ance.*
11. Grace specifically stated that lack of product liability insur-
ance had no effect on Transcraft’s value, provided that a reserve for
self-insurance was deducted from income. This is an extreme posi-
tion. There must be some additional costs of self-insurance by smal]
or private companies; otherwise it would be more common.
Nevertheless Launey and Grace provided the jury with a range of
expert opinion on the costs to Transcraft of self-insuriag.
12. All the witnesses compared “value before” to “value after.”
Launey and Zimmerman gave estimates of value immediately after
the loss of insurance.° In doing so they responded to the letter of the
Indiana law, and they offered the jury a range of opinions which
bracketed its final determination of damages.
13. The appellate decision would require “before” values set in
an explicity specified but-for werld. I understand that Indiana law
does not require such a specification.
The valuation witnesses were not asked by the judge or by
either side’s lawyers to respond to the questions raised by the appel-
*The court refers to the “principle that where, as in this case, the trial is held long
after the damaging event occurs, intervening events may show that any depression
in market value immediately after the damaging event. . .was transient and inflict-
ed no harm on the plaintiff. . . .” But this principle cannot be invoked by saying that
the value of the company increased over, say, three years. Absent the damaging
event, company value could have been still higher three years out. Only the incre-
mental effect of the event should count.
‘Mayers and Smith have stressed insurance companies’ greater administrative
efficiency in investigating and processing claims, negotiating settlements and
defending lawsuits. A self-insured company must do these things inefficiently. See
D. Mayers and C.W. Smith, Jr., “On the Corporate Demand for Insurance,” Journal
of Business 55, 281-296 (1982).
Both also gave valuations for later dates.
A-24
late decision. If they had been asked, and had given sensible
answers, the credibility of their testimony, as reflected in the written
transcript of the case, would be better from the point of view of eco-
nomics. But the jury was on the spot and had other ways of judging
credibility.
FURTHER AFFIANT SAYETH NOT.
\s\ Stewart C. Myers
Stewart C. Myers
STATE OF MASSACHUSETTS )
)SS:
COUNTY OF MIDDLESEX )
BEFORE ME THE UNDERSIGNED, a Notary Public in and
for said County and State, personally appeared Stewart C. Myers,
and he being duly sworn by me upon his oath, stated that the facts
and matters set forth in the foregoing Affidavit of Stewart C. Myers
in Support of Petition for Writ of Certiorari to the United States
Court of Appeals for the Seventh Circuit are true, executed the same,
and acknowledged the execution thereof.
IN WITNESS WHEREOF, | hereunto set my hand and affix
my official Notarial Seal, this 24th day of March, 1995.
My Commission Expires:
May 25, 2001 \s\Barbara Ahearn
Signature of Notary Public
My County of Residence:
Suffolk Barbara Ahearn '
Printed Name of Notary Public
A-25
EXHIBIT “A”
TO
APPENDIX “E”
CURRICULUM VITAE
OF
STEWART C. MYERS
PROFESSIONAL EXPERIENCE
1966-69
1969-76
1987-88
1976-84
1978-
1984-
1982-87
1988-
Assistant Professor, Sloan School of Management, MIT
Associate professor, Sloan School of Management, MIT
Visiting Professor, London Business School
Professor, Sloan School of Management, MIT
Research Associate, National Bureau of Economic
Research
Gordon Y Billard Professor of Finance, Sloan School of
Management, MIT
Area Head for economics, Finance and Accounting, Sloan
School of Management, MIT
Director, International Finance Services Research Center,
MIT
HONORARY AND PROFESSIONAL. SOCIETIES
American Finance Association
President, 1983
Vice President, 1982
Director, 1984-1985, 1975-977
American Economic Association
Financial Management Association
Southern Finance Association
Eastern Finance Association
Distinguished Scholar Award 1993
Japan Financial Economics Association Board of Advisors, 1993-
A-26
CONSULTING (Partial List)
Office of Economics, Federal Power commission
Federal Communications Commission
Eurofinance (Paris)
Communications satellite Corporation
PPG Industries
Association of Oil Pipelines
New York State Public service commission
Buckeye Pipeline Company
Brunswick Corporation
Charles River Associates
Digital Equipment Corporation
Federal Energy Regulatory commission
Pennsylvania Bell Telephone Company
Tax Division, U.S. Department of Justice
Wheeling Pittsburgh Stee! Corporation
LOOP, Inc.
Power Authority of the State of New York
Georgia Pacific Corporation
Attorney General, State of Arizona
Chase Manhattan Bank
Palladin Software, Inc.
Merck & Co., Inc.
Marriott Corp.
Phillips Petroleum Corp.
Shell International Petroleum Co., Ltd. (London)
Morgan Stanley, Inc.
Arnold & Porter
OTHER ACTIVITIES
Associate Editor, Journal of Finance (1971-1983), Journal of
Financial Economics, (1974-1988), Journal of Financial and
Quantitative Analysis (1970-1975), Journal of Financial
Research (1981-1990); member of Editorial Board, Midland
Corporation Finance Journal (1983-1988), and Journal of
Applied Corporate Finance (1989-), Financial Management
(1993-)
Selection Committee, Batterymarch Fellowship Program, 1981.
Director, Putnam, Hayes and Bartlett, Inc., 1989-1991.
Principal and Director, The Brattle Group, Inc., 1991-.
Director, Centre Cat, Ltd., 199-.
A-27
TESTIMONY (Partial List)
“Texas Eastern Transmission Corporation - Cost of Equity Capital
Study.” FPC Docket RP69-13, 1969.
“AT&T Cost of Capital Study.” FCC Docket 19129, 1971.
“A Study of the Risk of Comsat Common Stock.” FCC Docket
16070, 1974.
Testimony before the U.S. Senate Special Subcommittee on
Integrated Oil Operations, February 1974, and before the
Subcommittee on Antitrust and Monopoly of the Senate
Committee on the Judiciary, August 1974.
Direct and Rebuttal Testimony, William Pipeline Company. FERC
Docket OR79-1, ef al., 1979.
“Valuation of Penn Central Intercity Freight Lines, : Direct and
Rebuttal Testimony, Valuation Proceedings of the Regional Rail
Reorganization Act, 1978, 1980.
Direct and Rebuttal Testimony, Phillips Petroleum Company Iran vs.
National Iranian Oil Company, Iran-United States Claims
Tribunal, 1983, 1986, 1987.
Direct and Rebuttal Testimony, Massachusetts Automobile Rate
Hearings, October 1982, November 1984.
Testimony on calculating the value of damages, MCI
Communications Corporation vs. American Telephone and
Telegraph Company, Chicago, May 19835.
Direct and Rebuttal Testimony, Kuparuk Transportation Company,
FERC Dockets
1S85-9-000 and OR85-1-000; Alaska Public Utilities Commission
(Direct Only), Docket P-85-2, May-October 1986.
Rebuttal Testimony, Southern Pacific Pipe Lines, Inc., FERC
Docket IS85-15-000, 1986.
A-28
Direct and Reouttal Testimony, Endicott Pipeline Co., FERC Docket
1S87-36-000, December 1987, March 1989.
Rebuttal and Surrebuttal Testimony, Buckeye Pipeline Company.
L.P., FERC Docket IS-87-14-000, April 1988, July 1988.
Testimony on calculating the value of damages from patent infringe-
ment, including prejudgment interest, Polaroid Corporation vs.
Kodak Corporation, March 1990.
Expert Report, Rebuttal and Surrebuttal Reports, Marathon Oil Co.
and Phillips Petroleum Co. v. Department of Revenue, State of
Alaska, March-July 1991.
Expert Report, Rebuttal and Surrebuttal reports, U.S.-U.K.
Arbitration Concerning Heathrow User Charges, May-June
1991 (with R.A. Brealey)
Testimony on calculating the value of damages from patent infringe-
ment, including prejudgment interest, Mobil vs. Amoco,
December 1993.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.