Cerveceria Modelo de Mexico, S. de R.L. de C.V. v. CB Brand Strategies, LLC

Background

The plaintiffs filed motions in limine—motions asking the court to decide before trial whether particular evidence may be presented—to exclude defendants’ proposed expert testimony, other evidence, and argument concerning an alleged trade usage for the terms “beer” and “beer category.” The proposed evidence concerned whether sugar-based hard seltzers should be treated as beer.

The court had previously held that the sublicense involved in the case was ambiguous. Because the agreement was ambiguous, its interpretation became a factual question for the jury, and appropriate outside evidence of the parties’ intent could be admitted. The court explained that evidence of industry custom and usage is one type of such outside evidence, but only when the evidence is sufficient to support a finding that the claimed custom or usage was “fixed and invariable.”

Proposed trade-usage evidence

Plaintiffs challenged the opinions, report, and testimony of Michael Kallenberger. Kallenberger had worked in the beer industry for decades and concluded that sugar-based hard seltzers were treated as beer products by participants in the U.S. alcohol beverage industry. But neither his report nor his deposition stated that his proposed definitions of “beer” and “beer category” were fixed, invariable, or uniform throughout the industry. He also acknowledged that his interpretation of “beer” was not uniform and that some people disagreed that hard seltzer was beer.

The court stated that expert testimony describing only a “general understanding” in the industry was insufficient by itself to establish a fixed and invariable custom. It likewise found that defendants’ other proposed evidence, including lay-witness testimony, did not satisfy the requirement for competent evidence of a fixed and invariable practice.

Defendants argued that they did not yet have to prove the trade usage and needed only to offer enough evidence for a reasonable factfinder to determine that it existed. The court rejected that reading of the cited Second Circuit precedent. It held that the party seeking to establish a custom or usage must first provide competent evidence that the practice is fixed and invariable. Here, neither Kallenberger’s testimony nor the defendants’ other evidence, considered individually or collectively, could support a finding that the disputed terms had a fixed and invariable meaning.

Ruling

Judge Lewis A. Kaplan granted the plaintiffs’ motion to exclude Kallenberger’s opinions, report, and testimony (Docket 279) and granted their motion in limine to exclude all trade-usage evidence (Docket 351).

The court noted that the ruling did not resolve all issues concerning proposed testimony by plaintiffs’ experts Ray Daniels and Thomas Shellhammer about the meaning of “beer.” Defendants could still object if the plaintiffs sought to elicit that testimony at trial. The ruling also did not resolve questions concerning possible rebuttal testimony by Kallenberger and Rupp. The opinion does not state that the court entered judgment on the underlying contract dispute.