Opinion
Civ. No. 5-96-173 (JRT/RLE)
July 19, 2000.
MEMORANDUM ORDER
I. Introduction
This matter came before the undersigned United States Magistrate Judge pursuant to a general assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(A), upon the Defendants' Motion to Exclude the Plaintiffs' Expert Testimony on Damages.
A Hearing on the Motion was conducted on March 16, 2000, at which time, the Plaintiffs appeared by John D. Kelly, Esq., and the Defendants appeared by Joseph J. Roby, Jr., and Ethan Horwitz, Esqs.
For reasons which follow, we grant the Defendants' Motion.
II. Factual and Procedural History
On November 1, 1999, the Plaintiffs timely provided the Defendants with the Expert Report of Jeno Paulucci ("Paulucci"), who is the founder of Luigino's Inc. which, among other business pursuits, participates in the specialty frozen foods market with its "Michelina's" line of products. The Report, in total, comprises one and one-half pages of qualifications and opinion.Affidavit of Mark Pilon, Exhibit A. Expressed in its entirety, Paulucci is said to hold the following opinion:
Paulucci's Report is not in compliance with the governing provisions of Rule 26(a)(2)(B), Federal Rules of Civil Procedure, which requires that a party's expert disclosure be "accompanied by a written report prepared and signed by the witness." (Emphasis added). Paulucci's Report is unsigned, and Paulucci's opinions are summarized by Plaintiffs' counsel, which is plainly insufficient under Rule 26(a)(2)(8). Although the Defendants have not challenged Paulucci's Report on the basis of its procedural deficiencies, we note that those failings, in and of themselves, could properly form a basis for excluding Paulucci's opinion evidence. Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 283 (8th Cir. 1995) ("The power of the trial court to exclude exhibits and witnesses not disclosed in compliance with its discovery and pretrial orders is essential to judicial management of the case.") (internal quotation and citation omitted), cert. denied, 516 U.S. 822 (1995). Since the Defendants have chosen to challenge Paulucci's expert disclosures on substantive, as opposed to procedural grounds, we deem any objections, as to the form of Paulucci's Report, to have been waived.
Pursuant to the "Custom packing and Sales Agreement" between Luigino's and Quality Finer Foods, Inc. ("QFF"), products would be produced and marketed using the resources of Luigino's alongside the other product's of Luigino's, Inc. * * * [O]ver a four-year period, QFF's products would have been marketed by Luigino's to twenty thousand stores, with the following schedule used to spread out the slotting fees which Luigino's was prepared to lend to QFF; five thousand stores at the end of the first year, ten thousand stores after two years, fifteen thousand stores after three years and twenty thousand stores after four years.
[B]ased upon the sales performance of QFF's products while they were on the market, * * * the performance of similar Luigino's products in additional markets areas [sic] to which plaintiffs' products would have been introduced and * * * the industry over the same three years period [sic], that a conservative estimate for sales of QFF's products would be one-half case per week per store. With a planned expansion of QFF's product line to six products and with sales occurring through 20,000 stores, this would in the fifth year yield sales per week of 60,000 cases of QFF products, or 3,120,000 cases per year, with proportionally lower sales during the first three years as store placement ramped up to 20,000 stores. Based upon * * * the attached cost date provided by QFF ($2.13 gross per case gross profit) and [a] conservative estimate of additional administrative costs at $.63 per case, Mr. Paulucci will testify that QFF would have experienced EBITDA of $4,680,000.00 at the end of the fifth year of its contractual relationship with Luigino's.
[B]ased upon [Paulucci's] experience in selling and receiving offers to purchase companies which produce prepared or frozen foods, that a conservative market value of QFF at the end of the fifth year of its relationship with Luigino's would be eight times EBITDA, or $37,440,000.
Id.
Synopsized, Paulucci opines that, at the end of the fifth year of business, the Plaintiff would have had profits — that is, earnings before interest, taxes, depreciation, and amortization ("EBITDA") — of $4,680,000.00. Declaration of Elliot R. Basner, Ex. A, at 2. This profit projection is obtained by estimating the future sale of 3,120,000 cases of wild rice product per year, with an estimated average gross profit of $2.13 per case, and with estimated administrative costs of $0.63 per case. Id. Given these projections, Paulucci concludes that the market value of the Plaintiffs' business, at the end of the fifth year, would have been eight times its profits — its EBITDA — or $37,440,000.00.
This projection holds true, according to Paulucci, notwithstanding the fact that, in the first thirteen months of operation, the Plaintiffs' wild rice products business had gross sales of only $329,130.13. Id., Ex. B. Paulucci bases his opinion solely upon his "knowledge and experience" with marketing what he urges as being a similar line of products under the Luigino's trademark. Not surprisingly — given that his opinion conflicts in several significant ways with the Plaintiff's actual market performance during the thirteen months of its operation — Paulucci disregarded the Plaintiff's actual sales; any marketing or promotional expenses attendant to the operation of such a business; any research into a proper earnings multiple, or the projections of costs and earnings that are contained in the Plaintiffs' Business Plan. Paulucci Deposition, at 51-54, 71-72, 121-22, 124-25, 130-31, 132-34, 136. The Defendants find Paulucci's projections to be no more than vague theorizations.
III. Discussion
The Plaintiffs seek to proffer Paulucci as an expert, at Trial, on the issue of damages. As noted, Paulucci predicates his opinion on his "knowledge," and "experience," in the business of selling frozen foods, of a type assertedly similar to those sold by the Plaintiffs. The Defendants contest the admissibility of Paulucci's opinion as lacking the foundation required under Rules 702 and 703, Federal Rules of Evidence. In essence, the Defendants believe that Paulucci has presented an insufficient factual basis upon which to draw a competent opinion, let alone one that is defensible on any grounds other than that the opinion is truly held by Paulucci. As a result, the Defendants request that we exercise our gatekeeping function by excluding Paulucci's opinion testimony.
A. Standard of Review. The admissibility of expert testimony is governed by Rules 702 and 703, Federal Rules of Evidence. Rule 702 provides:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.
In pertinent part, Rule 703 reads as follows:
The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.
[Emphasis added].
When evaluating the admissibility of expert testimony under Rule 702, Federal Rules of Evidence, the Court must look to both the relevancy and the reliability of the testimony. See, Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999); Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993);Jaurequi v. Carter Mfg. Co., 173 F.3d 1076, 1082 (8th Cir. 1999). The purpose of that requirement "is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho Tire Co., Ltd. v. Carmichael, supra at 152.
Thus, before accepting the testimony and opinion of an expert witness, the Trial Court is charged with the "gatekeeper" function of determining whether the opinion is based upon sound, reliable theory, or whether it constitutes rank speculation. Id. at 141; Daubert v. Merrell Dow Pharmaceuticals, Inc., at 589-90. "Expert testimony that is speculative is not competent proof and contributes `nothing to a `legally sufficient evidentiary basis.'" Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1057 (8th Cir. 2000), citing Weisgram v. Marley Co., ___ U.S. ___, 120 S.Ct. 1011, 1015, 1020 (2000), citing in turn, Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209, 242 (1993).
"`Expert testimony is useful as a guide to interpreting market facts, but it is not a substitute for them.'" Id., citing Brooke Group Ltd. v. Brown Williamson Tobacco Corp., supra at 242;Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 n. 19 (1986) ("[E]xpert opinion evidence * * * has little probative value in comparison with the economic factors * * *."). Thus, "[a]n expert opinion cannot sustain a jury's verdict when it `is not supported by sufficient facts to validate it in the eyes of the law * * *." Id.; see also, Wright v. Willamette Indus., Inc., 91 F.3d 1105, 1108 (8th Cir. 1996) (Motion for Summary Judgment should have been granted because the expert's opinion, on causation, was speculative).
This gatekeeping function is applicable to "technical and other specialized expert testimony, in addition to the testimony of scientific experts." Id. at 1171, quoting Rule 702, Federal Rules of Evidence. In order to be helpful to the trier of fact, the witness must be qualified as an expert, the expert must have a reasonable factual basis for their testimony, the testimony must be based on reliable methods, and the testimony must be relevant to the facts at issue. Rule 702 and 703, Federal Rules of Evidence; General Electric Co. v. Joiner, 522 U.S. 136, 146 (1997); Daubert v. Merrell Dow Pharmaceuticals, Inc., supra at 589. In Joiner, the Supreme Court reaffirmed-that:
Trained experts commonly extrapolate from existing data. But nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence which is connected to existing data only by the ipse dixit of expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered.Id.
Opinion evidence, which is not helpful to the Jury, is not admissible. Rule 702, Federal Rules of Evidence.
B. Legal Analysis. The Defendants proffer the unpublished decision, in JMJ Enterprises, Inc. v. Via Veneto Italian Ice, Inc., 1998 WL 175888 (E.D. Pa., April 15, 1998), to support their contention, that the opinions of Paulucci are unreliable, under the strictures of Rules 702 and 703. While not controlling, the JMJ decision is instructive for, there, the Trial Court held that an expert who relies upon his personal experience as a basis for his opinion must, nonetheless, "be able to point to [the] methods that he applied" in reaching that opinion. Id. at *10. It is not enough, in the view of the Court, in JMJ, for the expert to "simply base his conclusions on his `thirty-one years of experience.'" Id. Precedent compels us to agree.
"Evidence of damages is sufficient as long as it is `not wholly speculative,' Pillsbury Co. v. Illinois Cent. Gulf R.R., 687 F.2d 241, 246 (8th Cir. 1982), and permits the jury to `approximate damages on the basis of just and reasonable inferences,' Wagner Elec. Corp. v. Local 1104, Int'l Union of Elec. Workers, 496 F.2d 954, 957 (8th Cir. 1974)." John Morrell Co. v. Local Union 304A of United Food and Commercial Workers, AFL-CIO, 913 F.2d 544, 558 (8th Cir. 1990), cert. denied, 500 U.S. 905 (1991). In John Morrell Co, our Court of Appeals affirmed the District Court's admission of an expert's lost profit calculation, occasioned by a union strike, where the "expert's approach involved projecting the plant's sales and profits based upon historical data, determining the extent to which external factors had an impact on profits, adding strike-related losses such as decreased profits at the distribution centers, and deducting expenses which Morrell saved as a result of the strike." Id. at 559. Although the expert presented a total of eight different calculation models, which resulted in loss calculations that varied from $20 million, to $31 million, the Court of Appeals concluded that the "expert provided [the Jury with] sufficient guidance by explaining the different assumptions upon which each model was premised." Id., see also; Schneider (Europe) AG v. SciMed Life Systems, Inc., 852 F. Supp. 813, 846 (D. Minn. 1994) (Court is able to assess reasonableness of expert's market share analysis on the basis of his calculation of the number of [the plaintiff's] lost sales; the number of [the defendant's] sales on which a royalty is due; and the accompanying lost profit margins and supporting analysis).
In contrast, Paulucci's analysis of the Plaintiff's future worth was not predicated upon historical data, either from the Plaintiff, or from Paulucci's other business enterprises, and the opinion evades any disciplined means to test its legitimacy. By way of example, Paulucci's Report is bereft of any generally accepted analytical model upon which future projections could be responsibly computed. While we do not discount Paulucci's belief, that his projections are valid, an expert's mere belief in the. legitimacy of his opinions is insufficient to allow the admissibility of the conclusions reached. The objective ofDaubert, Kumho, and their progeny — at least in major part — was to eliminate the playground-like banter, between experts, who each proclaim, without benefit of a factual showing, that his opinions are correct, while those of the other expert are wrong. Such an exchange, unaided by a competent foundation, is of no assistance to a Jury. Indeed, if admitted, the expert's bare opinions would usurp the Jury's factfinding function, since the Jury would have nothing, other than the experts' superficial appearance, upon which to accept, or reject, their respective opinions.
Paulucci maintains that his valuation of the Plaintiff's economic worth is based upon an assumption that the sale of the Plaintiff's line of products would mirror the marketing success of Michelina's product line — a product Paulucci has marketed.Paulucci Report, at 2, Pilon Aff., Ex. A. As a result, he premises his conclusion on an estimate, based upon his "experience and knowledge" of the frozen foods markets, and nothing more. Id. Absent from his Report, as well as from his deposition testimony, is any factual basis to support the likelihood, that the marketability of the Plaintiff's product would mimic that of Michelina. The absence of foundation, for the opinion that Paulucci. has expressed, is palpable.
In response to the Paulucci Report, and in support of their Motion to Exclude, the Defendants have submitted the Expert Report of Wayne A. Hoeberlein ("Hoeberlein"). Basner Declaration, Ex. C. In his report, Hoeberlein challenges Paulucci's valuation of the Plaintiff's worth on several substantive grounds. First, Hoeberlein notes that Paulucci did not performed a study of the present or future market conditions, for the Plaintiff's products, by employing reliable methodologies commonly used to perform such analyses. Hoeberlein Report, id. at 5. Nor did Paulucci conduct an analysis as to the value of the Plaintiff's use of the "Louis Kemp" trademark, in connection with the sale of its products, separate and apart from the value of the business as a whole, thereby rendering his opinion unreliable. Id. Paulucci's opinion is also flawed, in the view of Hoeberlein, because it is unsupported by any evidence to so much as suggest that Paulucci was correct in his estimate, that the Plaintiff's products would eventually be marketed in twenty thousand stores, within a period of four years. Id.
For instance, Paulucci has failed to submit any documentary evidence that Luigino's products have the marketing history that he has projected for the Plaintiff's product. Neither the Defendants, nor the Jury, are obliged to accept Paulucci's unsupported, conclusory statements concerning the propriety of equating the Plaintiff's product, for marketing purposes, with an unsupported characterization of the marketing success of products distributed by Luigino's.
Similarly, Hoeberlein contests, as without foundation, Paulucci's estimate of the quantity of the Plaintiff's product that would be sold, in any of the five years that are encompassed within his valuation approach. Id. at 6. As Hoeberlein underscores, the actual sales performance of the Plaintiff's [wild rice] products, while they were actually in the marketplace, does not support the estimates employed by Paulucci, as the number of cases, which were documented as sold, were significantly lower. Id. To support his criticism, that Paulucci's estimate greatly overstates the Plaintiff's actual sales in the first, and second, years of operation, Hoeberlein points to a document entitled "Exhibit E — Retail Sales." According to this document, which was produced by the Plaintiff, the total number of cases sold in the first thirteen months of operation — that is, from November 17, 1995, to December 28, 1996 — were only 16,025, as opposed to the 390,000 cases that were estimated by Paulucci. Paulucci appears to have reached this exaggerated number of cases sold, by employing an assumption that, by the end of the first year, the Plaintiff would be in 5,000 stores, in which it would sell one-half case of product per week, for each of its three products — 5,000 x .5 x 52 x 3 = 390,000 cases of product. Id.
Notably, Paulucci elected to apply an assumed number of cases sold, even though the Plaintiff had records of actual sales, for the years in question. Such an approach is analytically troublesome, for it exalts fiction, over nonfiction. While deduction may fairly allow an inference from facts available, so as to draw a conclusion as to facts not available, when those facts are available, and not employed, the deduction cannot rise above a mere untested assumption. Such an assumptive approach cannot competently assist the Jury in its factfinding role.
Hoeberlein also challenges the reliability of Paulucci' s assertion that the Plaintiff's products are similar to those of Paulucci's Michelina product line. Apart from Paulucci's conclusory observation, that the two lines of products are sufficiently comparable, for analytical purposes, he provides no evidence to support that contention. This, too, discredits the reliability of Paulucci's approach. Moreover, Paulucci has failed to support his estimate, concerning the potential public demand for the Plaintiff's products, with any form of market analysis that would corroborate some marketing correlation between the demand for Luigino's products, and the demand for the Plaintiff's products.
In addition, Hoeberlein has identified inconsistencies in Paulucci's expense estimates that present additional grounds to conclude that his opinion is factually unfounded and, therefore, is unreliable. Rather than to assist the Jury, the Defendants contend that Paulucci's opinions, unsupported as they are, would only serve to confound the Jury's consideration of the damages issue. For instance, the Plaintiff produced documents that contradict the underpinnings of Paulucci's assumptions, and that highlight the sparsity of Paulucci's effort to substantiate the opinions that he proposes to render. According to the Custom Packing and Sales Agreement, which extends between the Plaintiff and Luigino's, the handling charge, which is included in Paulucci's computation of the Plaintiff's marketing expenses, is subject to a cost of living adjustment every 90 days, Basner Aff., Ex. G, at 12, 14 — an adjustment that is not accounted for in Paulucci's analysis.
Further, Hoeberlein notes that, despite the fact that the Plaintiff's Business Plan projections include slotting fees, which range from $100,000.00 to $150,000.00, Paulucci's analysis fails to account for this significant expense. As well, the Plaintiff produced a document, which is entitled "Summary of Cost of Advertising, Marketing and Promotions," and which includes "wages, chargebacks, coupons, promotions, traveling, marketing, and slotting," as being actual expenses incurred by the Plaintiff. Nonetheless, Paulucci's analysis, and resultant opinions, do not reveal that any consideration was extended to these expenses.
We wish to make plain, that we do not accredit Hoeberlein's criticisms of the Paulucci approach without reference to the entirety of the Record before us. At the end of nearly any inquiry into the foundation for one of Paulucci's conclusions is his assertion that he is experienced in the marketplace, and is sufficiently familiar with commercial enterprise to warrant the conclusions he has reached. We do not question Paulucci's business acumen, and presume, for these purposes, that he invests his capital, and personal attention, with no more investigative effort than he applied here. While Paulucci can rest confident, that his experience, and perceptions of a competitive marketplace, will serve his business interests well, we do not here appraise his capacity to market a product, or his success in doing so. Both Daubert, and Kumho, make clear that the day of the expert, who merely opines, and does so on the basis of vague notions of experience, is over. Experts are now held to a level of accountability, that requires factual predicates, in historical fact, or in competent evidence, which allows a factfinder to independently verify the accuracy of the expert's results. Absent such reliable verification, the expert's opinion is not admissible.
Paulucci's reliance upon factually unfounded extrapolations from his own personal experience, without more, is an insufficient footing upon which to premise an opinion on the Plaintiff's purported damages. While the Plaintiff suggests that any shortcomings, in Paulucci's analysis, should be presented to the Jury, by way of the Defendants' cross-examination, they present no authority for the proposition that where, as here, the analysis is so barren of factual support, a Jury's time should be so needlessly expended. We would sacrifice our obligation, as a gatekeeper, should we allow such a tenuously predicated opinion to enter the Jury's consideration. The purpose of expert testimony is to aid the Jury, Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1055 (8th Cir. 2000), not to supplant it,United States v. Shedlock, 62 F.3d 214, 219 (8th Cir. 1995). Left isolated, as it is, from a competent factual basis, Paulucci's opinion is of no assistance to the Jury and, if admitted, could supplant the Jury's factfinding function.
As our Court of Appeals has recently explained, in Concord Boat Corp. v. Brunswick Corp., supra at 1055:
In recent years the Supreme Court has put renewed emphasis on the importance of the "fit" of an expert's opinion to the data or facts in the case:
[C]onclusions and methodology are not entirely distinct form one another * * *. [N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytic gap between the data and the opinion proffered. General Elec. Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997); see also Jaurequi v. Carter Mfg. Co., 173 F.3d 1076, 1082 n. 3 (8th Cir. 1999). A court must focus on the "reasonableness of using such an approach, along with [the expert's] particular method of analyzing the data thereby obtained, to draw a conclusion regarding the particular matter to which the expert testimony was directly relevant." Kumho Tire Co. v. Carmichael, 526 U.S. 137, 154, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999) [Emphasis in original]
Notably, in Concord Boat, the Court of Appeals excluded a damages expert's opinion that, in the Court's view, the Trial Court had erroneously admitted. There, as here, the expert's opinion was objectionable in that it was untethered to a competent factual premise. As the Court reasoned:
Because of the deficiencies in the foundation of the opinion, the expert's resulting conclusions were "mere speculation." Virgin Atlantic Airways Ltd. v. British Airways PLC, 69 F. Supp.2d 571, 580 (S.D.N.Y. 1990) (summary judgment appropriate on Section 1 and 2 claims because "an expert's opinion is not a substitute for a plaintiff's obligation to provide evidence of facts that support the applicability of the expert's opinion to the case") Expert testimony that is speculative is not competent proof and contributes "nothing to a `legally sufficient evidentiary basis.'" Wiesgram v. Marley Co., ___ U.S. ___, 120 S.Ct. 1011, 1015, 1020, 145 L.Ed.2d 958 (2000) (citing Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209, 242, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993). "Expert testimony is useful as a guide to interpreting market facts, but it is not a substitute for them." Brooke Group Ltd., 509 U.S. at 242, 113 S.Ct. 2578; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 n. 19, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ("[E]xpert opinion evidence * * * has little probative value in comparison with the economic factors * * *.")Id. at 1057.
Quite simply, "[a]n expert opinion cannot sustain a jury's verdict when it "is not supported by sufficient facts to validate it in the eyes of the law, or when indisputable record facts contradict or otherwise render the opinion unreasonable * * *."Id., quoting Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209, 242 (1993).
In JMJ Enterprises, Inc. v. Via Veneto Italian Ice, Inc., 1998 WL 175888 * 7 (E.D. Pa., April 15, 1998) the Court illustrated the indicia of reliability, which could sustain an expert's market opinions, as including the following: a verification of sales projections; the performance or review of market surveys; research into the industry or into similar businesses; review of actual sales; review of expenses; and a consideration of all independent variables. In most every respect, Paulucci's analysis is devoid of any such indicia.
Therefore, finding that Paulucci's opinions are too speculative to provide assistance to the trier of fact, in that they are unacceptably removed from a factual basis, and they fail to account for market variables which, ineluctably, would affect the conclusions that he ultimately reached. See, Blue Dane Simmental Corp. v. American Simmental Ass'n, 178 F.3d 1035, 1041 (8th Cir. 1999) (affirming lower court's decision to exclude expert testimony that failed to consider "all independent variables that could affect the conclusion."). Lastly, we make clear that, undoubtedly, Paulucci has the requisite expertise to proffer market-related opinions but, unfortunately, the ones he offers here are devoid of competent, factual predicates. Accordingly, we grant the Defendants' Motion to exclude Paulucci's opinion evidence at the time of Trial.
NOW, THEREFORE, It is —
ORDERED:
That the Defendants' Motion to Exclude Plaintiffs' Expert Testimony on Damages [Docket No. 64] is GRANTED.