Diego F. Loinaz, et al., Plaintiffs, Appellees, v. Eg & G, Inc., Defendant, Appellant, 910 F.2d 1 (1st Cir. 1990)

David Rapaport, Boston, Mass., for defendant, appellant.

Jose E. Fernandez-Sein with whom Law Offices of Nachman & Fernandez-Sein, Rio Piedras, P.R., was on brief, for plaintiffs, appellees.

Before BREYER, Chief Judge, CYR, Circuit Judge, and PETTINE,^*  Senior District Judge.

PETTINE, Senior District Judge.

The defendant, a Massachusetts corporation, challenges a jury verdict that holds the corporation liable for $750,000 damages in a fraud and breach of contract case. This appeal is based on several grounds. First, the defendant claims that it did not receive a fair trial because it was denied a continuance of the scheduled trial date and then denied permission to present a witness out of turn, thereby compelling the defendant to present deposition testimony, rather than an actual witness, to the jury. Second, the verdict is excessive, contrary to the evidence, and the product of local passion. Third, the defendant asserts that it was denied a fair trial by several evidentiary rulings during trial. Because we find that, under the circumstances of this case, the defendant's first ground for reversal is compelling, we do not reach the other issues.

The broad outline of the facts of this case is not in dispute. The dates, places, leading characters, and general subject matters of conversations are described almost uniformly by all witnesses. However, when the details and nuances are explored the story begins to disintegrate. We will set forth just enough of the outline and disputed details to illuminate the issue.

In 1984 the defendant EG & G, Inc., a Wellesley, Massachusetts, corporation, began exploring the possibility of moving some of its manufacturing operations to locations where the business might receive a favorable tax status. Puerto Rico was one location being considered. John Buckner, the chief financial officer for EG & G, submitted an interim report on the tax advantages of an EG & G manufacturing operation in Puerto Rico to the plaintiff Diego Loinaz. Loinaz was then the president and general manager of Millipore-Waters, a Puerto Rican subsidiary of the Millipore Corporation. Buckner had worked for Millipore before joining EG & G and had at the time established a friendship with Loinaz.

Loinaz analyzed EG & G's tax plan and sent a report to Buckner. In October 1984, several EG & G executives including Buckner and Charles Francisco, senior vice president of EG & G, visited Puerto Rico. Loinaz apparently arranged the agenda for the visit and acted as guide. In December 1984 Loinaz and an associate at Millipore, Sarah Bacon, visited EG & G manufacturing plants in Massachusetts, New Jersey, and Tennessee in order to get an impression of the kinds of manufacturing in which EG & G was involved. Following the tours of the manufacturing plants, Loinaz met with Francisco in Wellesley, Massachusetts, to discuss the possibility of Loinaz and EG & G working together to establish some kind of manufacturing enterprise in Puerto Rico. Of particular interest to Loinaz was a joint venture between EG & G and XXI, Inc., a group Loinaz had formed from past and present employees of Millipore to develop new industrial projects in Puerto Rico. No resolution was reached at this meeting. Francisco and Loinaz agreed to meet again after the New Year to discuss the matter further.

On January 7 and 8, 1985, Loinaz met with Francisco and Buckner in San Juan. The substance of the January 7 meeting is not in dispute. Loinaz presented Buckner and Francisco with a plan, in writing, for a joint venture between EG & G and XXI, Inc. The EG & G executives also heard Loinaz' ideas on how best to establish an industrial enterprise in Puerto Rico. By the end of the meeting on January 7, it was clear to Loinaz that Buckner and Francisco were not interested in a joint venture, but they were interested in an employment relationship in which Loinaz would join EG & G and help develop an EG & G manufacturing operation in Puerto Rico. This relationship would be discussed the next day.

The contents of the January 8 meeting are shrouded. Loinaz, Buckner and Francisco, the only persons present at the meeting, testified consistently on the subjects discussed, and on many of the details of those subjects. But the accounts vary when it comes to the purpose, resolution, and meaning of each of those subjects. Unfortunately, this divergent testimony cannot be ignored; the understanding reached between the parties to this meeting is crucial to the liability determination. The divergent testimony cannot be written off as memory lapses or misunderstandings. The points of disagreement are too important, the parties too experienced in business dealings, and the memories too self-serving.

The parties have agreed, the defendant only after all the testimony was in, that Buckner and Francisco, acting for EG & G, and Loinaz made an oral employment contract at this meeting. Buckner in his deposition had said that no actual employment offer was made to Loinaz at the January 8 meeting, although they did talk specifics of compensation and at the end of the meeting they believed that they could come to an agreement. Buckner stated that the EG & G offer was to be formalized in a letter to be drafted by Francisco. Loinaz and Francisco each testified that an oral employment agreement was struck on January 8 and that a letter confirming that agreement would be sent soon by Francisco. However, Francisco qualified his testimony by stating that some details were not worked out at the meeting and were to be incorporated later in the letter memorializing the agreement reached at the meeting; these details proved troublesome and the confirming letter was delayed.

The basic components of the oral contract are not contested. First, Loinaz was to give up entirely his involvement with XXI, Inc. EG & G was to compensate Loinaz with a base salary of $100,000, bonuses, standard fringe benefits, and extra fringes that included a car, country club membership, and schooling for his children. Some of the compensation was to be paid in a form that was tax free or tax advantageous. In addition, EG & G would make a one-time payment of $20,000 to Loinaz to make up for benefits he would lose by resigning from Millipore; Sarah Bacon, a Millipore employee and XXI, Inc. member, was to be hired by EG & G to assist Loinaz; and EG & G agreed to pay the leases on certain buildings in Puerto Rico for which Loinaz had retained options. Finally, there was a termination clause that required EG & G to pay Loinaz six months' salary and either recommend him for or give him a distributorship in Latin America for EG & G products.

The disputes arise over the method of compensation, the length of the contract, and the certainty of Loinaz obtaining a distributorship in the event his employment with EG & G was terminated. Buckner and Francisco both testified in deposition that they told Loinaz on January 8 that EG & G would attempt to set up a pay package that would shelter some of his salary from taxes, and one way this might be done was by issuing stock to Loinaz. They testified that they told Loinaz they were not certain this could actually be done; the tax people at EG & G would attempt to put this aspect of the offer together. On the bonus provision, the EG & G executives asserted that any bonus discussed was that given to EG & G executives--incentive compensation based on performance (which at a maximum could equal 50% of compensation)--such bonuses were not assured and were determined on an annual basis. Loinaz' testimony was that these discussions had a much more definite tenor to them. Half of his base compensation--$50,000--was to be tax sheltered. The bonus, which Loinaz says Francisco and Buckner guaranteed, was to be twice the before tax equivalent of his salary plus special fringes.

The duration of Loinaz' employment was another source of great debate. Loinaz believed he accepted a five-year contract of employment with EG & G; this five years was to cover the full implementation of EG & G's Puerto Rican operation. He conceded that EG & G reserved the option to terminate his employment if a product suitable for EG & G to manufacture in Puerto Rico were not found; this would be known after six months of employment. If EG & G exercised this option, Loinaz would be awarded six months' salary and given a distributorship in Latin America for EG & G products. Again, the EG & G executives' recounting of this aspect of the January 8 meeting manifested less lofty promises and more uncertainty. Both Buckner and Francisco said no promises were made about the length of Loinaz' employment because they did not know if the Puerto Rican plan would work. If the plan was terminated, EG & G would pay Loinaz the equivalent of six months' salary, and Francisco would encourage the general managers of EG & G's companies to be responsive to Loinaz' sales pitch for distribution rights in Latin America.

These disputes over the content of the January 8 meeting were not evident for at least two months. After the meeting, Loinaz tendered his resignation to Millipore, but at that company's request continued to work there until March 1, 1985. During February 1985, Loinaz began work on the feasibility study for EG & G, and several employees from EG & G who would have input into the proposal flew to Puerto Rico to meet with Loinaz. Among those visiting Puerto Rico was Juliana Coyle, a C.P.A. who worked for the comptroller of EG & G on various accounting and tax projects. Loinaz finally arrived at EG & G corporate headquarters in Wellesley on March 4. Up to this time, Loinaz had not received the letter confirming his employment that Francisco had promised to send shortly after the January 8 meeting. The letter was not presented to Loinaz until March 12. When Loinaz finally did receive the letter, he was upset with its contents. Although he conceded at trial that much of what had been agreed to on January 8 was in the letter, he believed the letter deviated from the agreement in terms of the tax sheltering and the promise of a distributorship if he was terminated. He stated the March 12 letter set forth a "tax sham" that would not legally shelter his income from taxes. The letter was never signed by Loinaz. Although he did not have a signed contract of employment, Loinaz was placed on EG & G's employment rolls at an annual salary of $50,000, continued his feasibility study, and embarked on a long western trip to visit EG & G plants. He was accompanied on this trip by Sarah Bacon and Juliana Coyle.

Both Buckner and Francisco testified that, after the January meeting, they received reports about Loinaz' behavior that made them question their decision to hire Loinaz. In February, Coyle, and perhaps other EG & G personnel who visited Puerto Rico, reported that they had seen documents on XXI, Inc. stationery, and Coyle reported that Loinaz had approached her about working for XXI, Inc. Buckner confronted Loinaz about this in a telephone meeting in February. After the March trip that Loinaz, Coyle, and Bacon took to the west coast, Buckner and Francisco again received unfavorable reports from Coyle about Loinaz' behavior. Of particular importance to Buckner and Francisco, Coyle reported that Loinaz again offered her employment with XXI, Inc. It was Buckner's and Francisco's testimony that these reports of the continued operation of XXI, Inc., which Loinaz had specifically agreed to terminate in January, prompted their decision to terminate their employment relationship with Loinaz in April 1985. On April 25, after attempting to establish a consulting arrangement with Loinaz, EG & G mailed Loinaz a termination notice. In March 1986, Diego Loinaz, Mary Loinaz, and their conjugal partnership filed suit against EG & G in federal district court in Puerto Rico.¹ 

On November 30, 1988, the court set Tuesday, March 21, 1989, for the commencement of the trial, which the parties had estimated would take five days. Neither party offered any objection to the date until January 17, 1989, when the defendant moved for a continuance because the wife of the defendant's lawyer was expecting a child in late February. The motion was denied on February 1. Five days before the trial was to begin, the defendant again moved for a continuance, this time on the grounds that several of its witnesses had developed scheduling problems. According to the defendant, Buckner, who now worked for a Minneapolis-based company, was in the middle of a financial crisis with his new firm, and he could not come to Puerto Rico in late March; another witness, Francisco, who had also left EG & G, had just informed the defendant that he would be available only the week of March 20, a week in which there would only be three trial days because of a court holiday on Good Friday. The trial judge denied the motion without opinion.

Trial commenced on Tuesday, March 21. A jury was selected and the plaintiffs began direct examination of Diego Loinaz. At the beginning of the afternoon session on March 22, when the direct examination of Diego Loinaz was still in progress, the defendant requested that it be allowed, under Federal Rules of Evidence 611(a),²  to present its witness, Francisco, out of turn. The defendant stated that Francisco would be in Puerto Rico later that day but would only be available to testify on Thursday, March 23, as his wife was having elective surgery in New York on Tuesday, March 28. The defendant argued that Francisco was "the most important person in [its] case," Transcript at 164, and was the only witness other than Loinaz who could testify about the January 7 and 8 meetings--Buckner having refused to come to Puerto Rico. Furthermore, a deposition was an inadequate substitute for the jury to assess the testimony. The plaintiffs objected to this motion, arguing that the court had already denied a motion for continuance based on the same circumstances, and that if the defendant's motion were granted, the plaintiffs would suffer prejudice. According to the plaintiffs, they would be adversely affected because they had not yet presented the witnesses who would corroborate the testimony of Diego Loinaz. To present the defendant's witness when the plaintiffs were just beginning their case would be prejudicial. Further, the plaintiffs quibbled, Buckner, not Francisco, was the key witness for the defendant. Finally, the plaintiffs pointed out that there was a full deposition of Francisco that could be used in place of his live testimony. The court denied the defendant's motion, stating:

This is a case which is an '86 case. It has been scheduled for trial as late as November 28, '88, for the start on March 21, 1989. And [the plaintiffs' lawyer] is correct in the sense that the whole dynamics of the trial in his case would be affected by producing what you call the key witness of the defendant right after this testimony. That is not the way things are done.

The only way that I could allow such alteration in the order of proof is for a very serious situation. But this is more a situation where the other--where the witness referred to, Mr. Francisco, wants an accommodation of his personal interest, and the Court cannot take that into account as the prime factor to allow you to bring him tomorrow as a witness right in the middle of the plaintiffs' case.

So your request is denied.

Transcript at 168-69.

The following day, the defendant renewed his request to present Francisco out of turn, this time presenting the court with a written motion. Appended to the motion was an affidavit by Francisco supporting the earlier statements by the defendant that when Francisco had been contacted by the defendant's lawyer in February and March, he did not inform the lawyer of the surgery, expecting that his testimony in Puerto Rico would be completed before the surgery. The defendant's lawyer justified his predictions that Francisco would testify on March 23, 24, or 27 by pointing to the five-day estimate for the trial. The court again denied the motion:

Transcript at 273-74.

The defense opened its case on March 28 by reading the deposition of Buckner. Two witnesses were then presented. The defendant made one final attempt to have Francisco testify in person. It contacted Francisco in New York on March 28 and requested that he return to Puerto Rico to testify. Francisco refused to return to Puerto Rico on either March 29 or 30. Before resting on March 30, the defense read the deposition of Francisco into the record. The case went to the jury on March 31. The judge instructed the jury that deposition testimony

Transcript at 1239.³  The jury returned a verdict that day; they found EG & G liable to the conjugal partnership of Diego and Mary Loinaz for economic damages in the amount of $750,000. The jury did not award damages for mental pain and suffering.⁴ 

The defendant is asking us to rule that it was denied a fair trial because the judge refused to continue the trial or to permit a witness to be presented out of turn. Such rulings by appellate courts are particularly distasteful. Decisions regarding the management of the trial calendar and the courtroom proceedings are particularly within the province of the trial judge, and her determinations will not be disturbed by us absent a finding that she abused her discretion. Real v. Hogan, 828 F.2d 58, 63 (1st Cir. 1987) (standard in reviewing rulings on motions for continuance is abuse of discretion); Zurich v. Wehr, 163 F.2d 791, 793 (3d Cir. 1947) (abuse of discretion standard applied to judge's refusal to depart from regular trial order). Appellate judges, reading sterile, written documents, cannot know all that preceded the challenged judgment, so they must be mindful that there may be factors the record does not reveal. They must also be wary of the tendency to employ hindsight that encompasses the entire case, to consider evidence and circumstances, including the ultimate outcome, that were not available to the judge at the time of her ruling. However, although the view from the appellate court is not perfect, a trial court's discretion is not unlimited. If we believe that the trial judge's discretionary decisions have resulted in undue prejudice to the appellant's case, we will reverse. This Circuit has said that a judge abuses her discretion "when a relevant factor that should have been given significant weight is not considered, when an irrelevant or improper factor is considered and given significant weight, or when all proper and no improper factors are considered, but the court in weighing those factors commits a clear error of judgment." United States v. Hastings, 847 F.2d 920, 924 (1st Cir.) (quoting United States v. Kramer, 827 F.2d 1174, 1179 (8th Cir. 1987)), cert. denied, 488 U.S. 925, 109 S. Ct. 308, 102 L. Ed. 2d 327 (1988); In re San Juan Dupont Plaza Hotel Fire Litigation, 859 F.2d 1007, 1019 (1st Cir. 1988). There is no neat, standardized test for judging abuse of discretion; each case must be judged on its own facts and circumstances. Ungar v. Sarafite, 376 U.S. 575, 589, 84 S. Ct. 841, 849, 11 L. Ed. 2d 921 (1964).⁵ 

The denial of the Rule 611 motion by the trial judge in this case resulted in severe prejudice to the defendant in that neither Buckner nor Francisco, the two principal witnesses who could rebut the testimony of the plaintiff Diego Loinaz, was able to testify at the trial. Because of the decision, the defendant could not present to the jury a person who would rebut the plaintiffs' version of the facts, a person whom the jury could evaluate in the same manner they had Diego and Mary Loinaz. The plaintiffs' presentation of Diego and Mary Loinaz to the jury was very important because the case was not just about some agreement that the plaintiffs claim was broken, it was also about two people who claimed to be harmed by the defendant's actions. The jury got to see the people who claimed that they had been wronged and emotionally scarred by the defendant's actions.⁶  Their testimony as witnesses made the case real--here were the man and the woman whose claims the jury must decide. The defendant could offer the jury nothing to compare with the persons of Diego and Mary Loinaz; all they had were "canned" answers read back by an employee of the court. The men who negotiated the oral contract with Diego Loinaz on January 7 and 8, 1985, and who were involved in the decision to terminate his employment later that year were not people who could be observed, judged, and identified with. Francisco's words were read to the jury and was the man described by Diego Loinaz.⁷ 

The plaintiffs argue that EG & G did not suffer any real prejudice because it was able to present the deposition testimony of Francisco, testimony that was detailed and complete. While it is true that the jury did get to hear EG & G's side of the story from depositions, that does not fully address the question of prejudice. The Federal Rules of Civil Procedure that allow the use of deposition testimony in place of live testimony "have not changed the long established principle that testimony by deposition is less desirable than oral testimony and should ordinarily be used as a substitute only if the witness is not available to testify in person." 8 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2142 (1970). Judge Learned Hand proclaimed the deposition to be "second best, not to be used when the original is at hand." If possible, it is always better if the jury can observe the witness firsthand to judge his or her demeanor. In this case, it was possible for the jury to observe Francisco firsthand, if the Rule 611 motion had been granted.

The prejudice to the defendant in this case went beyond that generally suffered by any party forced by circumstances to present deposition testimony instead of an actual witness. This entire case, both that of the plaintiffs and that of the defendant, rested on credibility; even the trial judge in denying a motion for a directed verdict said, "this whole case is full of credibility issues." Transcript at 1168. "With credibility a vital factor, [the party] is entitled to a trial where the jury can observe the witnesses while testifying." Arnstein v. Porter, 154 F.2d 464, 469 (2d Cir. 1946). Acceptance of the plaintiffs' or the defendant's position in this case must be based on who the jury believes. Buckner and Francisco were testifying to key, and dispositive, events to which only they and Diego Loinaz were privy. If the jury believed their testimony, at a minimum Loinaz' economic damages would be reduced, and at best the jury could have found that the defendant owed nothing at all if they believed Francisco's testimony that Diego Loinaz had breached the agreement. The defendant had no chance to persuade the jury, observing Francisco's and Buckner's demeanor, that it was worthy of belief. Arnstein, 154 F.2d at 470. Compare Frechette v. Welch, 621 F.2d 11, 16 (1st Cir. 1980) (because appellant's position not tied to attack on witnesses' credibility, use of witnesses' depositions instead of actual appearance of witnesses is harmless error). All the jury had in this case was the reading, without personification, of a lengthy deposition; they could judge the credibility of the words read, but they could not judge the credibility of the man who spoke the words. When a witness' credibility is a central issue, a deposition is an inadequate substitute for the presence of that witness.

That the defendant has suffered prejudice because of a decision by the trial judge does not necessarily mean that the judge has abused her discretion. Other factors that may have entered into the judge's determination, that may weigh against the defendant, must be added to the balance of our decision. Prejudice to the plaintiffs or to the judge's ability to manage her calendar and courtroom may offset the prejudice to the defendant. The prejudice to the defendant will also be diminished if the defendant itself has done anything to promote or establish the prejudice it now claims.

The plaintiffs claim that they would have been prejudiced if the testimony of Francisco had been taken out of turn and allowed to interrupt their presentation of their case. Certainly, the general rule is that a party should be able to present his case and order that case as he sees fit. However, Rule 611 has carved out an exception to this general rule and requires the trial judge to control the presentation of evidence in the interest of ascertaining truth. The dynamics of a party's presentation may be compromised when the testimony of an opposing witness is allowed to interrupt that presentation, but Rule 611 recognizes that such an alteration in order may be necessary at times.⁸  In this case, the plaintiffs claim the interruption would have been damaging because it would have separated the testimony of Diego Loinaz from that of the corroborating witnesses. Although it is true that the testimony of the plaintiffs' other witnesses was consistent with that of Diego Loinaz, their testimony could not, and did not, corroborate his on the critical issues of what agreements were reached at the meetings on January 7 and 8, 1985, and whether he had offered Juliana Coyle employment with XXI, Inc. The plaintiffs have failed to show that they would have been seriously affected by an interruption in their presentation of evidence. Certainly, their prejudice would not rise near that experienced by the defendant.

Likewise, the trial judge failed to articulate any persuasive reasons that an interruption in the plaintiffs' order of proof would harm the court. The court's schedule would not have been compromised, and any confusion to the jury that the interruption might have created could have been cured by instructions from the judge. It is possible that a court's authority could be threatened by frivolous interruptions in the court's orderly administration of justice. However, this requested interruption was not frivolous, and the simplistic statement by the court that "this is not the way things are done" is inadequate. We are unable to fathom a compelling reason for how this interruption would have injured the court's administration of justice. The administration of justice must have as its goal the "ascertainment of the truth"; enabling the defendant to present Francisco as a witness would certainly have promoted this goal.