Tang Capital Partners, LP v. BRC Inc.

Background

Tang Capital Partners, LP sued BRC Inc. for breach of contract, claiming that BRC caused damages by preventing Tang from exercising BRC warrants. The court had already granted summary judgment to Tang on liability. The remaining trial issues were the amount of compensatory damages and whether Tang made reasonable efforts to reduce its losses, a legal concept called mitigation of damages. Both parties filed motions in limine, which are requests to decide before trial what evidence or arguments may be presented.

Tang’s motions

The court granted Tang’s motion to exclude BRC’s evidence that it relied on advice from its lawyers. It denied Tang’s motion to exclude testimony from attorney Peter Seligson about his non-privileged conversation with Tang’s lawyer, Ryan Murr. Seligson could testify about what he told Murr and the conversation’s effect on Tang’s mitigation efforts, but not about legal advice given to BRC.

The court granted Tang’s motion to exclude Professor Terrence Hendershott’s supplemental expert report. BRC produced the report after expert discovery had closed, and it offered a new damages calculation using March 10, 2022, instead of March 11, 2022, as the date when Tang could have begun mitigating its losses. The court found the late disclosure unjustified and excluded the supplemental report, while allowing Hendershott to testify about the scenarios in his original report.

Regarding evidence about Tang Capital’s chief executive, Kevin Tang, the court granted the motion in part and denied it in part. BRC may introduce evidence of his financial sophistication and experience with transactions involving millions of dollars, but may not introduce the amount of his personal wealth. BRC may question Tang employees about possible bias, allegiance, or fear of reprisal, but may not gratuitously present evidence that Kevin Tang was difficult, angry, or impersonal.

The court also granted in part and denied in part Tang’s motion concerning Tang Capital’s financial information. The court rejected blanket exclusion of information about assets under management, other financial performance, and trading in other securities. But it excluded evidence or argument that Tang Capital was a “money-losing” or “long-underperforming” hedge fund, and directed the parties to discuss which trading information should be redacted. The court denied Tang’s request to require BRC to produce former employee Tanner Doss for live testimony because he lived outside the court’s subpoena power. It granted Tang’s motion to exclude testimony from BRC board member Steven Taslitz.

BRC’s motions

The court granted BRC’s motion to exclude Tang’s claim for punitive damages. Tang had litigated the case for years as a breach-of-contract action seeking compensatory damages and did not disclose a punitive-damages theory during discovery, expert proceedings, or earlier filings. The court found the late disclosure unfairly prejudicial and held that Tang could not use the previously undisclosed information to seek punitive damages at trial. The court stated that it was not basing the ruling on the merits of the punitive-damages claim, although it observed that the case did not appear to meet the high legal standard for punitive damages in a contract case.

On mitigation, the court granted BRC’s motion in part and denied it in part. Tang could not argue that it had no duty to mitigate after BRC’s breach or that BRC had an equal duty to mitigate. Tang could argue, however, that its mitigation duty began later than March 11, 2022, or that BRC’s statements and conduct gave Tang reason not to believe it had to mitigate at that time. The jury would also be told that the court had already found BRC breached the warrant agreement. Tang could refer to the breach, but could not suggest that Tang violated securities laws.

The court granted BRC’s motion to exclude references to BRC’s conduct as “illegal” or “unlawful.” It also granted BRC’s motion to exclude evidence and argument about the financial benefits BRC insiders received from earnout shares. The court granted in part and denied in part BRC’s motion concerning evidence involving non-parties and communications of which Tang was unaware. It excluded testimony from three non-party warrant investors, as well as communications offered to show BRC’s bad faith, but allowed testimony from certain BRC employees about BRC’s statements to other investors regarding when the warrants could be exercised. The court granted BRC’s motion to exclude evidence of its political activity and barred BRC from referring to itself as a public benefit corporation or stating that it existed to serve veterans.

Affirmative defenses and disposition

The court ruled that BRC could not assert affirmative defenses based on election of remedies or waiver. BRC had not pleaded election of remedies or timely disclosed that defense, and the court found that neither defense applied. Tang’s conduct did not show that it had chosen to terminate the contract or intentionally abandoned its contractual rights. The court concluded that the parties’ motions in limine were granted in part and denied in part as described above, and directed the clerk to terminate the motions at Dockets 227 and 236.