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Watch Me Pull a Customer Out of My Hat: Proving Damages Using Your Customer’s Out-Of-Court Statement

Bryan D. Harrison

Bryan D. Harrison | Attorney View more articles

Bryan is a member of our Litigation Practice Group

Hearsay is simple enough to define – it is an out of court statement offered for the truth of the matter asserted. But practicing attorneys know that the definition of hearsay is deceptively complex. Questions like, “what is a statement?” or “what is the truth that the statement asserts?” can be surprisingly difficult questions to answer. And then there are the plethora of exceptions set out in Federal Rule of Evidence 803 that turn the rule on its side.

This article is intended to provide helpful guidance with respect to one of those exceptions -- the then-existing mental, emotional, or physical condition exception to hearsay codified at Rule 803(3). Knowing this rule, and the situations in which you can apply it, will help streamline the presentation of your damages case. In fact, you may even be able to establish your entire damages case with just your customer’s out-of-court statement.

Federal Rule of Evidence 803(3) provides one of many exceptions to the rule against hearsay and states that the following is not hearsay: “[a] statement of the declarant's then-existing state of mind (such as motive, intent, or plan) or emotional, sensory, or physical condition (such as mental feeling, pain, or bodily health) …” In short, an out-of-court statement made about an existing future plan is not hearsay and can come in as substantive evidence.

The First Circuit Court of Appeals and the United States District Court for the District of Massachusetts have provided a plaintiff-friendly interpretation of Rule 803(3) that can help establish entitlement to damages.

In Packgen v. Berry Plastics Corporation, the plaintiff manufactured specialty containers for holding a volatile chemical used to refine crude oil. The plaintiff redesigned the container, sold more than 7,500 containers to its primary customer, and then began marketing the redesigned product directly to oil refineries as potential new customers. The “decision-makers” at 37 refineries (i.e., the potential new customers) told the plaintiff’s president and sales manager that they would purchase the redesigned container. Then, before any of the 37 refineries could place an order, existing containers began to fail due to a defect in the laminated fabric that the plaintiff used to manufacture the containers and which the defendant supplied.

The District Court concluded that the plaintiff was able to present evidence about the fact that the customers had intended to buy the redesigned container – even without having the customers appear at trial – when plaintiff relied on Rule 803(3) to good effect. The District Court allowed the plaintiff’s president to testify about the customers’ intent to buy containers as a statement of the declarant’s then-existing state of mind – i.e., the customers’ then-existing intent or plan to purchase the products. The jury ultimately awarded the plaintiff $7.2 million in damages. The First Circuit affirmed this evidentiary ruling pursuant to Rule 803(3) because the statements reflected a “collective intention” to buy the redesigned container in the future. Although not expressly stated in the First Circuit’s opinion, the plaintiff’s president’s testimony clearly had a substantial impact on the case in light of the multi-million dollar damages award.

Since Packgen, litigants in the District of Massachusetts have been able apply an even further expanded use of Rule 803(3) to include states about why a potential customer took a certain action. For example, testimony in SiOnyx, LLC v. Hamamatsu Photonics K.K. raised a Rule 803(3) question similar to the one that was before the Court in Packgen.

In SiOnyx, the plaintiff sought damages after a deal with a potential customer fell through based on the defendants’ alleged breach of a non-disclosure agreement. A representative of the plaintiff testified that the potential customer told him that “the deal is off because of [defendants’] patents.” The testimony was permitted, and the Court explained that “[t]he First Circuit has squarely held that testimony of this kind is admissible,” citing Packgen. In an extension of Packgen, however, the court allowed the entire statement into evidence, not only as proof of the fact that the deal was off, but also as proof of the facts regarding why the deal fell through.

These cases, Packgen and Sionyx, demonstrate how a plaintiff can use its customer’s out-of-court statements to prove its damages case, or at least a portion of it. This can be incredibly useful in the common, understandable, situation when a plaintiff is unable or unwilling to call a potential customer to testify. Rule 803(3) provides a simple avenue for a plaintiff to testify about lost sales without running afoul of the rules of evidence.

However, practitioners must be careful to ensure not to run afoul of the scope of Rule 803(3). In Packgen, the First Circuit did not permit testimony about why the potential customers did not buy the redesigned packages, only that they did not. And in SiOnyx, although the court did allow testimony about the fact that the deal fell through because of the patents, it did not allow testimony as to why the customer believed the patents to pose a problem.

In addition, the Rule and cases make clear that, in order to admit out-of-court testimony under Rule 803(3), the customer’s statement must be forward looking, not backward looking. That is to say, a plaintiff will not be able to testify about a conversation in which the customer explains why, reflecting back, it failed to make an expected purchase.

As long as the statement of intent that you want entered into evidence was made at the time that the declarant had the intent, it should be admissible pursuant to the exception to the rule against hearsay set out in Rule 803(3).

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