Pacific Steel Group v. Commercial Metals Company

Background

Pacific Steel Group moved for an advance ruling on whether certain statements by third party Danieli Corporation could be admitted under Federal Rule of Evidence 801(d)(2)(E). That rule excludes from the definition of hearsay a statement made by a co-conspirator during and in furtherance of a conspiracy. Commercial Metals Company and its subsidiaries opposed the motion.

Pacific Steel narrowed the statements it sought to admit to: (1) an email from Pacific Steel executive Mark Olsen to Pacific Steel executive Eric Benson relaying statements that Danieli CEO Paolo Losso allegedly made to Olsen; (2) Olsen’s and Benson’s testimony about Losso’s statements; and (3) statements Losso allegedly made to Commercial Metals executives.

Pacific Steel argued that Danieli and Commercial Metals had a conspiracy based on an agreement giving Commercial Metals exclusive rights to purchase Danieli’s MiDa mills within a specified geographic area. Pacific Steel contended that the agreement was designed to prevent Pacific Steel from buying a MiDa mill in that area.

Analysis

The court explained that Pacific Steel had to prove by a preponderance of the evidence that Danieli participated in a conspiracy with Commercial Metals and that the statements were made during and in furtherance of that conspiracy. The court rejected Commercial Metals’ argument that the rule could apply only to agreements involving illegal conduct. Under Ninth Circuit precedent, the required common plan or enterprise need not have an illegal objective.

The court nevertheless found that Pacific Steel did not meet its burden. It concluded that Pacific Steel relied only on the exclusivity agreement and had not presented evidence outside the agreement showing that Danieli and Commercial Metals formed a joint venture or pursued a common plan. The agreement did not mention Pacific Steel, and the court found no case establishing that parties to an arm’s-length commercial contract become agents or joint venturers merely because they entered into the contract.

The court also held that the statements did not satisfy the separate requirement that they be made “in furtherance” of the alleged agreement. Statements must further the common objectives of the alleged conspiracy, and the key question is the declarant’s intent in making the statement. The court found that Losso’s communications with Pacific Steel about the agreement were not necessary to carry out the agreement. It also found that statements describing Commercial Metals’ alleged intent, narrating past events, or expressing Losso’s dissatisfaction did not show an intent to advance a common plan.

The court similarly found that Losso’s statements to Commercial Metals about wanting to discuss the agreement and being worried about it could not reasonably be understood as advancing a conspiracy. According to the court, those statements communicated Losso’s own concerns rather than reassuring Commercial Metals or providing information that would help achieve the alleged conspirators’ objectives. The court also stated that merely asking to discuss the situation was not enough.

Disposition

The court found that Pacific Steel had not shown by a preponderance of the evidence that the co-conspirator exception justified admitting the statements at issue. It therefore denied Pacific Steel’s motion in limine. The court added that some of the proposed testimony might be admissible for a non-hearsay purpose, but Commercial Metals could object to the appropriate scope of that testimony.