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Argued January 11, 2001

Edward Paul Coady appeals the judgment that he breached his employment contract with the law firm of Ashcraft & Gerel and was therefore required to pay liquidated damages to the firm. He contends that the district court erred in denying him summary judgment on the breach of contract claim when the firm had committed a prior material breach of the contract and had concealed that breach from him until long after he was fired. He also contends that the district court erred in precluding him from introducing any evidence of the law firm’s prior breach, most significantly, evidence of the firm’s alleged “surreptitious manipulation of income and expenses” going “to the very heart of [his] defense and counterclaims.” Finally, Coady contends that the district court erred in refusing to strike the liquidated damages claim as a penalty. We hold that the district court erred in precluding the admission of evidence that was relevant to Coady’s defense to the breach of contract claim, and that the error was not harmless. Accordingly, we reverse the judgment.

I.

 
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