Tax Matrix Technologies LLC v. Wegmans Food Market

• Court: Court of Appeals for the Third Circuit
• Decided: June 8, 2018
• Docket: 17-2056
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 17-2056 _____________

TAX MATRIX TECHNOLOGIES, LLC; Appellant

v.

WEGMANS FOOD MARKETS, INC. _______________

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-13-cv-6223) District Judge: Hon. Eduardo C. Robreno _______________

Argued on January 11, 2018

Before: JORDAN, ROTH, Circuit Judges and MARIANI*, District Judge.

(Filed June 8, 2018)

Michael H. Rosenthal, Esq. (ARGUED) Stuart D. Lurie, Esq. Rosenthal Lurie & Broudy LLC 102 Pickering Way, Suite 310 Exton, PA 19341

Counsel for Appellant

* Honorable Robert D. Mariani, United States District Court Judge for the Middle District of Pennsylvania, sitting by designation. Jeffrey J. Harradine, Esq. (ARGUED) David M. Knapp, Esq. Daniel P. Purcell, Esq. Ward Greenberg Heller & Reidy LLP 1800 Bausch & Lomb Place Rochester, NY 14604

Edward A. Greenberg, Esq. Ward Greenberg Heller & Reidy LLP 1835 Market Street Suite 650 Philadelphia, PA 19103

Counsel for Appellee _______________

OPINION _______________

MARIANI, District Judge.

Tax Matrix Technologies, LLC (“Tax Matrix”) appeals from the District Court’s

denial of its Motion for New Trial on Damages. At trial, the jury returned a verdict in

favor of the plaintiff, Tax Matrix, and against the defendant, Wegmans Food Markets,

Inc. (“Wegmans”), but only awarded Tax Matrix $351,551.86 in damages for breach of

contract when Tax Matrix claimed, and continues to claim, that Wegmans owes it

$1,370,079.25 for a sales and use tax audit defense project that it performed for

Wegmans. We agree with the District Court’s analysis and conclusion that Tax Matrix is

 This disposition is not an opinion of the full court and, pursuant to I.O.P. 5.7, does not constitute binding precedent.

2 I. Background

On May 15, 2009, Tax Matrix and Wegmans entered into a two page Letter

Agreement wherein Tax Matrix “shall examine Client records relating to sales and use

taxes for the Tax Periods and, where applicable, apply for Refund(s) and/or assessment

reductions for the Client.” (App. at 258). The Agreement defined the term “Refund(s)”

as “all amounts recovered through the refund claim process” including “[r]efund(s)

and/or reductions of sales and use taxes paid, assessment reductions, interest (or imputed

interest, if applicable), and amounts which are credited against another tax liability of the

Client.” (Id.). The Letter Agreement stated that “[i]n consideration for performance of

the aforementioned services to the Client, Tax Matrix’s fee shall be twenty-five percent

(25%) of all refunds.” (Id.).

On December 12, 2012, auditors for the State of Maryland released a first set of

workpapers to Wegmans (“First Workpapers”), listing a total sales and use tax deficiency

of $4,639,411.87. On December 17, 2012, the auditors released a second set of

workpapers (“Second Workpapers”), listing a total sales and use tax deficiency of

$2,153,430.62. The difference between the First and Second Workpapers was due to the

application of the “developed error factor” to two additional Wegmans stores, located in

Columbia and Crofton, to properly determine those stores’ asset values. Melissa Myers,

an employee of Tax Matrix, admitted at trial that at the time she received the First

Workpapers from Maryland, she did not know what a “developed error factor” was, and

as a result, “[b]esides advocating”, she played no part in the decrease in amount between

the First and Second Workpapers. (App. at 147, 151).

3 On February 28, 2013, Maryland released a third set of workpapers (“Third

Workpapers”), listing a total sales and use tax deficiency of $1,045,753.62. This new

reduced amount was due to the Maryland auditors identifying, and correcting, an

arithmetic error contained in the Second Workpapers. Myers admitted that she did not

identify that error and only “came later to find out” that there was an arithmetic error.

(App. at 153).

In June, 2013, Maryland issued a final audit, assessing a net sales and use tax

deficiency of $255,542.82.

In August, 2013, Tax Matrix issued an invoice to Wegmans for $1,370,079.25 for

the services it performed in reducing the company’s tax deficiency. This amount was

calculated by applying a 25% contingency fee to the entire amount of the reduction Tax

Matrix asserted it achieved, which was the difference between the amounts listed in the

First Workpapers and the final assessment, plus interest. Wegmans refused to pay the

invoice, arguing that the three sets of workpapers were not “assessments” and thus the

reductions in the workpapers were not “assessment reductions” as used in the definition

of “Refund(s)” in the Letter Agreement. As a result of Wegmans’ refusal to pay the full

invoice, Tax Matrix filed suit in the District Court for the Eastern District of

Pennsylvania in October, 2013, alleging breach of contract, or in the alternative, unjust

enrichment, by Wegmans for failure to pay Tax Matrix the 25% contingency fee agreed

to in the Letter Agreement.

The District Court found the term “Refund(s)” in the Letter Agreement to be

ambiguous, denied both parties’ motions for summary judgment as to the breach of

4 contract claim, dismissed all of Wegmans’ counterclaims, and scheduled the action for

trial.

Prior to the trial, the District Court granted Tax Matrix’s “Motion in Limine to

Exclude Evidence of After-the Fact Contract Re-drafting” (App. at 93), which sought to

“exclude evidence that, in January 2013, Jason Frownfelter, a Tax Matrix employee, saw

a potential problem with the language of Tax Matrix’s standard form contract and then

revised that contract” (id. at 93 n.2). Frownfelter’s email read as follows:

Guys, See the attached Wegmans contract. It references refunds and assessment reduction. I see a potential problem with our contract wording (not necessarily with Wegmans, but overall). For example, with the Wegmans MD audit, we technically are not reducing an actual assessment per our contract……just preliminary findings. Thoughts?

(App. at 460). In response, Michael Espenshade, President of Tax Matrix, replied, in

pertinent part, “Let’s rewrite our standard agreement over next 2 weeks.” (Id.).

Despite the District Court’s ruling on the motion in limine, at trial the Court

allowed counsel for Wegmans to introduce the email during Frownfelter’s cross-

examination for impeachment purposes. The email was published to the jury without

objection and marked as Exhibit D-7. During the charge conference, Exhibit D-7 was

discussed and the District Court stated that “although it was technically admitted on the

argument that the plaintiff’s [sic] had opened the door to that evidence, I think once the

door was opened it was substantive evidence for the purposes of this case.” (App. at

202). The District Court explained that “had that not occurred, then perhaps it would

have been limited to impeachment.” (Id.). The Court therefore informed counsel that the

5 exhibit could be used in closing arguments. Wegmans’ counsel ultimately only

referenced the email in his closing statement with respect to liability.

The District Court bifurcated the trial into a liability phase and damages phase,

although no separate evidence was taken for the damages phase of the trial. After

deliberations as to liability, the jury found that Tax Matrix’s work for Wegmans on the

Maryland audit fell within the scope of work contemplated by the Letter Agreement and

that Wegmans breached the Letter Agreement by failing to pay Tax Matrix as required by

the contract. Following additional closing arguments, the jury deliberated with respect to

damages. In its closing argument addressing damages, Tax Matrix requested that the jury

award $1,370,079.25, the full amount of the August 2013 invoice, which represented

25% of the amount reduced from the First Workpapers to the final assessment, plus

imputed interest. Wegmans countered that Tax Matrix was only entitled to $228,631.68,

which it submitted was 25% of the difference between the amount that would have been

on the preliminary workpapers in the absence of the auditors’ mistakes which were not

noticed by Tax Matrix, and the final deficiency amount. The jury rejected both

suggestions, instead awarding Tax Matrix $351,551.86 in damages.

Tax Matrix filed a motion for a new trial on damages which the District Court

denied by Memorandum and Order dated April 19, 2017. Tax Matrix now appeals the

District Court’s Order denying its motion for a new trial on damages.

6 II. Discussion1

On appeal, Tax Matrix first argues that the District Court abused its discretion by

denying Tax Matrix’s Motion for New Trial on Damages because “the jury’s damage

award was not reasonable and bore no relation to the evidence presented at trial”

(Appellant’s Opening Br., at 1).

Because Tax Matrix did not move for judgment as a matter of law at the close of

the evidence, it is precluded from now seeking a new trial on the basis that the evidence

was insufficient to support the jury’s verdict of $351,551.86 in damages. However, while

Tax Matrix may not make a post-trial attack on the sufficiency of the evidence, Federal

Rule of Civil Procedure 59 permits Tax Matrix to request a new trial on damages on the

basis that the verdict was against the weight of the evidence, as opposed to the

sufficiency of the evidence. Greenleaf v. Garlock Inc., 174 F.3d 352, 364-65 (3d Cir.

1999). A new trial on the basis that the verdict was against the weight of the evidence is

only appropriate “when the record shows that the jury's verdict resulted in a miscarriage

of justice or where the verdict, on the record, cries out to be overturned or shocks our

conscience.” Williamson v. Consol. Rail Corp., 926 F.2d 1344, 1353 (3d Cir. 1991).

“Unlike a sufficiency of the evidence claim, when a court evaluates a challenge to the

1 The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291. A District Court’s ruling on a motion for a new trial is reviewed for abuse of discretion, except where the District Court’s denial of the motion is based on an application of law, in which case this Court’s review is plenary. Curley v. Klem, 499 F.3d 199, 206 (3d Cir. 2007); Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1167 (3d Cir. 1993). We apply an abuse of discretion standard when reviewing a District Court’s evidentiary rulings. McKenna v. City of Phila., 582 F.3d 447, 460 (3d Cir. 2009). 7 weight of the evidence it does not view the evidence in the light most favorable to the

verdict winner, but instead exercises its own judgment in assessing the evidence.” Marra

v. Phila. Hous. Auth., 497 F.3d 286, 309 n.18 (3d Cir. 2007).

Tax Matrix’s arguments fail to demonstrate that the jury’s verdict was against the

weight of the evidence or that the jury’s verdict resulted in a miscarriage of justice. Nor

can the verdict on the record be said to cry out to be overturned or to shock this Court’s

conscience. Tax Matrix asserts that because the jury found that the Letter Agreement

applied to Tax Matrix’s reductive work on the Maryland audit, the only logical starting

point for calculating Tax Matrix’s contingency fee was the amount set forth in the First

Workpapers. This argument ignores the fact that the District Court had already found, on

summary judgment, that the term “Refund(s)” in the Letter Agreement was ambiguous

and was thus a question of fact for the jury. Simply because the jury found that

Wegmans breached the Letter Agreement does not mean that the jury was forced to adopt

Tax Matrix’s definition of “Refund(s)” or the applicable starting point for contingency

fee calculation suggested by Tax Matrix. Rather, an assessment of the evidence

presented at trial supports a finding that the starting point for calculating the contingency

fee can be based upon the reductions for which Tax Matrix was itself responsible, and not

those errors that Tax Matrix failed to identify. Here, the jury, having found Wegmans

breached the Letter Agreement, found Wegmans owed Tax Matrix $351,551.86, which

represented 25% of what it deemed to be the reduction achieved by Tax Matrix.

Although Tax Matrix points to the testimony of several witnesses at trial in

support of its position, other witnesses’ testimony, including that of Tax Matrix

8 employees Stephen Feathers, Jason Frownfelter, and Melissa Myers, supports the jury’s

verdict. Stephen Feathers, the individual who negotiated and signed the Letter

Agreement on behalf of Tax Matrix, testified that “refunds” was meant “to mean any

overall savings that we provided through our reductive services”, but that Tax Matrix

only expected to receive a contingency fee for reductions it brought about through its

own efforts and not reductions from the efforts of others. (App. at 103-104). Jason

Frownfelter, Tax Matrix’s vice-president of client relations at the time of trial, admitted

that Tax Matrix would not get paid a contingency fee on reductions that were not of its

own making. (App. at 114) (“We would bill [the client] the contingency fee for that

client based on our reductive work. It’s pretty simple, if we don’t reduce anything we

don’t get paid.”) (emphasis added). Further, Melissa Myers acknowledged that Tax

Matrix did not notice, and was not responsible for, correcting Maryland’s arithmetic

errors which had inflated the deficiency figures in the first two sets of workpapers, nor

was she responsible for the reductions in Maryland’s calculation caused by correcting

misapplications of the “developed error factor” to two Wegmans stores.

As a result, the evidence of record demonstrated that Tax Matrix was not

responsible for the correction of the errors that in turn yielded the majority of the changes

between the First Workpapers and the State of Maryland’s final assessment. Rather, the

evidence presented to the jury demonstrated that the State of Maryland, by the time it

issued the Third Workpapers, had identified its own mistakes and corrected them by

properly applying the developed error factor to the Columbia and Crofton stores and

eliminating its arithmetic errors. In light of the testimony at trial and the ambiguity of the

9 term “Refund(s)”, the jury’s determination that the Letter Agreement only provided for

Tax Matrix to receive a contingency fee for the reductions for which it was actually

responsible, and subsequent determination that Tax Matrix was only entitled to

$351,551.86 instead of the $1,370,079.25 claimed by Tax Matrix, was reasonable and

cannot be said to shock the conscience or constitute a miscarriage of justice.

Tax Matrix’s second argument on appeal is that the District Court abused its

discretion by denying its motion for a new trial on damages where the Court had admitted

Exhibit D-7 for impeachment purposes only but subsequently permitted Wegmans to use

the exhibit as substantive evidence during Wegmans’ closing argument.2

Pursuant to Federal Rule of Civil Procedure 61, which addresses harmless error,

“no error in admitting or excluding evidence – or any other error by the court or a party –

is ground for granting a new trial, for setting aside a verdict, or for vacating, modifying,

or otherwise disturbing a judgment or order.” “[A]n error is harmless if it is highly

probable that it did not affect the complaining party's substantial rights.” Betterbox

Commc’ns Ltd. v. BB Techs, Inc., 300 F.3d 325, 329 (3d Cir. 2002) (citing McQueeney v.

Wilmington Trust Co., 779 F.2d 916, 924, 926 (3d Cir. 1985)); see also, Fed. R. Civ. P.

61.

2 To the extent that Tax Matrix also asserts that the District Court erred by first ruling that the emails were inadmissible but later allowed them to be used at trial, it was well-within the discretion of the District Court to alter its prior in limine ruling. See Luce v. United States, 469 U.S. 38, 41-42 (1984) (“[E]ven if nothing unexpected happens at trial, the district judge is free, in the exercise of sound judicial discretion, to alter a previous in limine ruling.”). 10 Tax Matrix argues that “[t]he District Court’s missteps allowed Wegmans to use

Exhibit D-7, an email from 2013, as the linchpin of its argument that the First

Workpapers did not qualify as an assessment and hence, could not be the starting point

for any damage calculation” and that it is therefore “probable that Exhibit D-7, which

should not have been admitted as substantive evidence, contributed to the jury’s damages

verdict.” (Appellant’s Opening Br., at 19).

Here, even if the Court were to accept Tax Matrix’s assertion that the District

Court erred by permitting Wegmans to use Exhibit D-7 as substantive evidence during its

closing argument, any such error is harmless.

At trial, Tax Matrix employee Frownfelter testified that “preliminary workpapers”

were synonymous with “assessments” and that the term “assessment reductions” in the

Letter Agreement included reductions from the preliminary workpapers that had occurred

during the Maryland audit. (App. at 120-121). Frownfelter testified this interpretation

was “pretty much industry standard.” (App. at 121). Because Frownfelter’s testimony

was deemed to have opened the door to the issue which the Exhibit D-7 email addressed,

the District Court permitted Wegmans to impeach Frownfelter with his prior statement to

the contrary in that email. The email was published to the jury as Exhibit D-7 as allowed

by the District Court and without objection by Tax Matrix. No limiting instruction was

given by the Court that Exhibit D-7 was only to be considered for impeachment purposes,

nor did Tax Matrix request such an instruction. Thereafter, Wegmans’ counsel presented

the email to Frownfelter and quoted it to him wherein he had stated “we technically are

not reducing an actual assessment per our contract, just preliminary findings.” (App. at

11 124). When asked whether he still stood by those words at trial, Frownfelter responded

in the affirmative.

At the charge conference, the District Court determined that although Exhibit D-7

was introduced on the basis that Frownfelter’s testimony had opened the door to its

introduction, “once the door was opened it was substantive evidence for the purposes of

this case.” (App. at 202). The Court added that had this not occurred, “then perhaps it

would have been limited to impeachment. But I think now it was before the jury, the jury

looked at it, and the witness was questioned about it.” (Id.). Following this decision, Tax

Matrix did not ask for any limiting instruction prior to the jury being charged.

Even if we were to find error in the District Court’s admission of Exhibit D-7 as

substantive evidence, the difficulty with Tax Matrix’s argument is that the jury found the

Letter Agreement did apply to Tax Matrix’s work for Wegmans on the Maryland audit

and that the Letter Agreement was breached by Wegmans. Thus, Tax Matrix’s argument

that Exhibit D-7 somehow hurt its claim for damages is difficult to reconcile with the fact

that the jury did find that the Letter Agreement applied to Tax Matrix’s work and entitled

Tax Matrix to a contingency fee payment based on the reductions that it was able to

secure through its efforts for Wegmans. This fact strongly suggests that the jury afforded

Exhibit D-7 little weight. Further, counsel for Wegmans only referenced Exhibit D-7 in

his closing argument with respect to liability. Following the jury’s verdict finding that

Wegmans breached the Letter Agreement, counsel for Wegmans did not reference

Exhibit D-7, much less suggest to the jury that the Exhibit was relevant to the issue of

damages or should be considered when deciding the amount of damages to be awarded to

12 Tax Matrix. In fact, Exhibit D-7 does not address who was responsible for what

reductions, or portions of reductions, from the First Workpapers through the final

assessment, and thus, while relevant to liability, cannot be said to have been of any help

to the jury in calculating damages. Finally, as discussed above, there was other and

sufficient evidence in the record to support the jury’s damages award without reference

to, or need for, Exhibit D-7. In light of the other evidence presented at trial, any error in

admitting Exhibit D-7 as substantive evidence was harmless.

III. Conclusion

For the foregoing reasons, we will affirm the District Court’s Order of April 19,

2017, denying Tax Matrix Technology, LLC’s Motion for New Trial on Damages.