Innovation Ventures, L.L.C. v. Custom Nutrition Labs., L.L.C.

This case involves a consideration of motions by both the plaintiff and the defendant to exclude the testimony of the other party’s expert witness based on Daubert and the Federal Rules of Evidence. Plaintiff’s expert testified on how to calculate lost profits based on the plaintiff’s market share. Defendant’s expert testified as to weaknesses in the plaintiff’s calculations and opinions on damages. Both motions were filed based on Daubert and the Federal Rules of evidence. The court denied both of these cross-motions.

Case Digest

This case deals with two pretrial motions regarding a plaintiff’s claim that it suffered economic damages due to the defendant’s breach of the parties’ previous settlement agreement regarding the defendant’s breach.

Background

Pretrial, the plaintiff filed a motion to exclude the testimony of the defendant’s expert witness regarding weaknesses on calculations and opinions on damages in the testimony of the plaintiff’s expert witness. The defendant filed a cross-motion to exclude the testimony of the plaintiff’s expert witness as to how to calculate lost profits based on the plaintiff’s market share. Both parties cited the Daubert case and the Federal Rules of Evidence as to the bases for exclusion. “As such, the Court’s analysis and conclusions here about whether, under Daubert, the opinions offered by Crawford and Pflaum could be admitted remains applicable.”

Legal Standard

The court notes that, under the Daubert case, it has a “gatekeeping role” to “ensure that any and all scientific testimony or evidence admitted is not only relevant but reliable.” (Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 589, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993)). The Kumho Tire case expanded Daubert to include testimony involving technical or specialized knowledge. The court also noted that a district court “has ‘considerable leeway in deciding … how to go about determining whether particular expert testimony is reliable.’” It also stated that rejection of expert testimony is the exception rather than the rule. Daubert noted that “[v]igorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.”

Defendants’ Motion to Exclude the Plaintiff’s Expert Testimony by Rodney Crawford

Plaintiff explains that their expert, Crawford: “(1) determined the total Choline Family-containing bottles NSL sold; (2) computed [the plaintiff’s] lost sales by multiplying the violative sales by [the plaintiff’s] five-year average, 85% product-category; and (3) multiplied [the plaintiff’s] lost sales by its average per-bottle profit.” 

The defendant asserts that Crawford is not “qualified” because his report is “mere arithmetic.” The court notes that the Federal Rules of Evidence 702 only requires that the expert witness “be qualified by ‘knowledge, skill, experience, training, or education.’” The court points out that Crawford “holds numerous licenses and certifications relating to fraud, financial forensics, and business valuation.” And Crawford has participated as a consultant or expert in several hundred matters involving forensic accounting investigations and/or claims of economic damages in commercial disputes. As such, Crawford has the qualifications to be an expert witness.

The 6th Circuit Court held that Innovation (the plaintiff) could use market share to prove its damages on appeal. “As such, on remand, Plaintiff is permitted to present market-share based calculations of lost profits as a theory of damages, while Defendants may offer ‘rebuttal evidence concerning the weaknesses of this specific calculation.’” 

As to whether Crawford’s testimony will help the trier of fact understand the issue of damages and how the defendant’s violative acts affected the plaintiff’s profits, the court says that it will assist the triers of fact in understanding the issue of damages.

There is also the question of whether Crawford’s opinions have “reliable factual support.” “Expert testimony may be deemed reliable so long as the witness’s premises have a reliable foundation, rather than being based on unsupported speculation.” In a Daubert motion, district courts are merely required to assess whether the expert testimony “rests upon a reliable foundation, as opposed to, say, unsupported speculation.” Using a method for quantifying lost profits based on market share is an acceptable method in this case. According to the court, Daubert, nor any other case, does not require that the best strategy be used. Further, though the party with the burden of proof (the plaintiff) is responsible for proving the “for” causation, that proof is not up to a single witness, i.e., Crawford in this case, and is not, therefore, a basis for exclusion. The defendant’s reliance on two cases purporting to show that the Crawford report and testimony must show the but-for causation is misplaced.

In summary regarding Crawford, the court says that “[a]ll of these purported weaknesses in Crawford’s analysis and conclusions can be considered by the jury in deciding how much weight to give his testimony, and whether it chooses to accept it or not.” Therefore, “[d]efendants have failed to establish that Plaintiff’s expert witness on damages should be excluded under Federal Rule of Evidence 702 and the Daubert factors.” The court denies the motion to exclude Crawford’s testimony.

Plaintiff’s Motion to Exclude Defendants’ Expert Testimony of Dr. Christopher Pflaum

In his deposition testimony and expert report, the defendants’ expert, Dr. Christopher Pflaum, concludes that the plaintiff’s Five-Hour Energy product and the defendants’ generic energy shots—manufactured for retailers as “house brands”—do not compete with one another in the same economic market. The defendant’s theory is that the plaintiff did not have any damages from the breach. The plaintiff asserts that the defendant’s report is based on unscientific and unreliable data, that Pflaum did not prepare his report, and, finally, that Pflaum’s opinions rely on inadmissible evidence.

The court determined that Pflaum has the qualifications and experience necessary to qualify him as an expert in this case. The remaining question, then, before the court, is whether Pflaum’s testimony is sufficiently reliable under Daubert and Federal Rules of Evidence 702. The question, then, is “under Daubert and Sixth Circuit case law … whether Pflaum ‘performed his analysis according to a reliable method … and reliably applied that method to the facts of this case.’” Case law in the 6th Circuit says expert testimony is “reliable to assess admissibility even if the analysis relies on factually erroneous premises so long as the principles of the analysis itself were correctly applied.” The court says that the issues the plaintiff raised in this case are “best clarified under cross-examination and resolved by the trier of fact.” The court further decided that Pflaum had sufficient input into preparing the report to show his work and is admissible under that test. 

Pflaum also asserted that the fact that the plaintiff was under investigation by the FDA impacts consumer preference and market share. The plaintiff argued that such information, based on press articles in the public domain, is inadmissible. The court ruled such evidence is admissible because it is the type of evidence that an expert in this field would reasonably rely on. Since the Federal Rules of Evidence 702 relax the hearsay rule for expert witnesses, it would be allowed in this case. For the reasons stated above, the court also denied the motion to exclude the testimony of Pflaum.

In summary, the court clarifies a distinction between admissibility of expert testimony and acceptance of that testimony throughout the opinion. It is left to the trier of fact, and the skill of the cross-examiner, to determine whether to accept such evidence, but to exclude it, in this case, based on the facts, the court would be stepping over the line. As a gatekeeper, as noted by the court, the exclusion is the exception rather than the rule.