This legal scenario revolves around a dispute between newspaper carriers, Bextermueller News Distributors, Inc., and Tom Richards, and the Defendants, Lee Enterprises, Inc., Lee Enterprises Missouri, Inc., Pulitzer, Inc., St. Louis Post-Dispatch, LLC. The carriers had agreements granting them exclusive rights to deliver St. Louis Post-Dispatch newspapers in specified geographic areas. Allegedly, the Defendants breached these agreements by implementing an electronic delivery system of the Post-Dispatch, impacting the carriers’ revenue and customer relationships.
The Plaintiffs claimed damages for breach of contract and breach of implied covenant of good faith and fair dealing. They engaged Melissa Gragg, a Certified Valuation Analyst, to quantify their lost revenue due to the Defendants’ actions. Gragg’s methodology involved assessing the number of digital-only subscribers within the carriers’ assigned routes from 2017 to 2023 and calculating the lost revenue by multiplying this number with the fee that Defendants are required to pay to Plaintiffs for each newspaper they delivered.
Defendants moved to exclude Gragg’s testimony, arguing that her calculations were flawed. They contested the notion that Plaintiffs were entitled to fees for every digital subscriber within their territories, stating that not all digital subscribers would have been print subscribers for which Plaintiffs would have received fees. Defendants claimed Gragg’s calculations were based on an incorrect premise, rendering her testimony irrelevant and unreliable.
In response, the Plaintiffs argued that according to their agreements, they were entitled to fees for deliveries within their designated areas, regardless of the delivery method or subscriber type. The Plaintiff-Carriers argued that Melissa Gragg’s calculations were in accordance with Missouri contract damages law. They contended that her calculations showcased the breach committed by the Defendants, specifically emphasizing the breach of the contractual obligation to abstain from establishing an alternative delivery system.
The crux of the dispute lay in whether Gragg’s damage calculations adhered to legal principles. Defendants contested the premise that Plaintiffs could claim fees for all digital subscribers within their territories. The Court held oral arguments to resolve this issue, considering the relevance and reliability of Gragg’s testimony in light of Missouri’s contract damages law.
Valuation Expert Witness
Melissa Gragg specializes in business valuations and provides expert witness testimony for litigation purposes. Her expertise spans diverse areas such as marital dissolution, shareholder disputes, commercial litigation, business interruption claims, personal damage calculations, and lost profits assessments. In cases involving divorcing spouses, she calculates maintenance, aids in understanding tax implications and cash flow, and traces separate assets. Gragg also contributes to fraud investigations for privately-held companies, government entities, and municipalities, lending her expertise to uncover fraudulent activities in these contexts.
Discussion by the Court
The admissibility of Gragg’s damages testimony hinged on whether her opinions were founded on a mistaken legal premise. Consequently, the Court’s analysis commenced with a review of the permissible damages under Missouri law for the claims presented, namely, breach of contract and breach of the implied covenant of good faith and fair dealing.
According to Missouri law, damages for breach of contract are restricted to compensating for the loss of the contract’s benefits. The primary objective is to restore the wronged party to the position they would have occupied had the contract been fulfilled. This principle was articulated in the case of Randy Kinder Excavating, Inc. v. J.A. Manning Constr. Co., Inc., 899 F.3d 511, 520 (8th Cir. 2018).
Missouri courts categorized breach of contract damages into three types: actual damages, consequential damages, and benefit-of-the-bargain damages, as outlined in Curators of Univ. of Missouri v. Suppes, 583 S.W.3d 49, 61 (Mo. Ct. App. 2019).
- Actual damages aimed to compensate for the direct loss or injury resulting from the wrongful act.
- Consequential damages encompassed those reasonably foreseeable damages caused directly by the breach, including those that could have been contemplated by the Defendant at the time of the agreement.
- Benefit-of-the-bargain damages, also known as lost profits damages, refer to the net profits the Plaintiff would have gained had the contract not been breached. These damages aimed to put the Plaintiff in the financial position they would have occupied had the contract been fulfilled as agreed upon.
The Plaintiffs contended that Melissa Gragg’s calculations represented their benefit-of-the-bargain or lost profit damages. They argued that according to the Agreements granting them exclusive distribution rights within their designated territories, every digital-only subscriber in those areas constituted lost revenue for the Plaintiffs. Their stance was irrespective of whether these digital subscribers would have ever opted for a print newspaper subscription.
Emphasizing that the Agreements made no exception for digital deliveries, the Plaintiffs asserted their entitlement to a fee for all deliveries within their exclusive territories. They highlighted Gragg’s assumption in her report that deliveries to subscribers within these territories warranted fees for the Plaintiffs, as stipulated in their agreements.
The Plaintiffs’ argument emphasized that the interest of digital customers in the printed version was immaterial to their claim for fees. They maintained that the Agreements explicitly entitled them to compensation for deliveries occurring within their exclusive territories, regardless of the customers’ preferences for print or digital versions.
The Court considered the Plaintiffs’ argument that, according to their interpretation, the Agreements mandated the Defendants to pay a fee for every delivery within their designated territories, regardless of the method or deliverer. In this scenario, if the Defendants commenced digital deliveries within these territories, the Plaintiffs could claim that the Agreements required compensation for all deliveries, including digital ones made by the Defendants.
Under this interpretation, if the Defendants refused payment for these digital deliveries, the number of digital subscriptions multiplied by the applicable delivery fee could represent the lost profits the Plaintiffs would have gained if the contract hadn’t been breached. Awarding damages equivalent to these fees would align with the objective of placing the Plaintiffs in the position they would have been in if the contract had been fulfilled.
However, the Court noted that the Plaintiffs hadn’t directed attention to any specific provision in the Agreements explicitly entitling them to fees for every delivery in their territories, irrespective of the deliverer or method. The Agreements stated the Defendants were required to pay the Plaintiff-carriers a fee “for each… copy of the St. Louis Post-Dispatch… delivered to home delivery subscribers by the Carrier.” This language didn’t encompass digital deliveries, and the breach alleged by the Plaintiffs wasn’t centered on the Defendants’ failure to pay for deliveries within the territories as stipulated in the Agreements.
The Court highlighted that Gragg’s opinion, seemingly based on the presumption that the Agreements entitled Plaintiffs to fees for every digital delivery, lacked support from the Agreements’ language. As a result, the opinion was fundamentally unsupported and couldn’t provide assistance to the jury.
The Defendants contended that Melissa Gragg’s approach to damages contradicted the legal principle governing breach of contract damages, which aims to restore the wronged party to the position they would have held if the contract had been fulfilled. Specifically, in cases seeking lost profits as damages, the goal is to quantify the net profits the wronged party would have gained had the contract not been breached.
The Court agreed with this legal principle and found Gragg’s damages calculations inconsistent with it. The Court highlighted a significant flaw in Gragg’s approach: she didn’t attempt to ascertain how many digital subscribers represented revenue that the Plaintiffs would have acquired in the absence of a digital-only delivery system. Gragg acknowledged during her deposition, a fact seemingly undisputed by the Plaintiffs, that some digital-only subscribers might have had no inclination toward a print newspaper and would never have become print subscribers even without a digital-only option. Consequently, the revenue that the Plaintiffs would have gained from these subscribers in the absence of the breach was effectively $0.
The Court noted that Gragg’s calculations failed to address or account for these subscribers who would not have contributed any revenue if the breach hadn’t occurred. Despite the potential inclusion of such subscribers in her calculations, Gragg didn’t make an effort to differentiate or adjust for these cases where revenue wouldn’t have materialized. Instead, she incorporated them into her calculations without distinction.
The Defendants argued that Melissa Gragg’s approach to calculating damages contradicted the legal principle dictating that a Plaintiff could only seek damages resulting directly from the alleged breach of contract. The Court agreed with this argument, emphasizing that under Missouri law, the purpose of breach of contract damages is to restore the wronged party to the position they would have held if the contract had been fulfilled. In cases seeking lost profits damages, the focus is on the net profits the wronged party would have gained had the breach not occurred.
The Court identified a critical flaw in Gragg’s methodology: it didn’t address the determination of how many digital subscribers would have contributed revenue to the Plaintiffs in the absence of a digital-only delivery system. Acknowledging this flaw, Gragg, as indicated in her deposition, acknowledged that some digital-only subscribers might have had no inclination toward a print newspaper and wouldn’t have subscribed in any circumstances.
The Court highlighted that Gragg’s calculations failed to account for or differentiate these subscribers who would not have generated any revenue if the breach hadn’t occurred. Despite this, Gragg included them in her calculations without accounting for the zero revenue they would have contributed, contrary to Missouri law on breach of contract damages.
During oral arguments, the Court posed a hypothetical scenario to Plaintiffs’ counsel, illustrating that under Gragg’s approach, damages would include fees from households that would never have subscribed to print deliveries, placing the carriers in a better financial position than if no breach had occurred. This approach contradicted Missouri’s contract law, which prohibits placing the wronged party in a more advantageous position than if the breach had not occurred.
Consequently, the Court concluded that Gragg’s method of calculating lost revenue lacked relevance and reliability under Missouri law. Her calculations didn’t analyze the actual revenue lost due to the alleged breach, incorporating fees that would never have been realized even without the breach. Thus, her opinion was deemed irrelevant and unreliable for assisting the jury and was consequently excluded.
The Court found that the cases cited by the Plaintiffs did not alter its conclusion. Despite Plaintiffs heavily relying on Machine Maintenance Equipment Co. v. Cooper Industries, Inc., 634 F. Supp. 367 (E.D. Mo. 1986), the Court clarified that this case reinforced the general principles it had previously relied upon. It reiterated that damages resulting from a breach of contract or breach of the duty of good faith must be those directly resulting from the breach and should aim to place the non-breaching party in the position they would have been in if the breach had not occurred. However, the cited case did not lend support to Gragg’s method of calculating lost revenue.
Furthermore, the other cases referenced by the Plaintiffs during oral arguments discussed the general principles relevant to the implied covenant of good faith and fair dealing. These cases highlighted that the implied covenant prevents a contracting party from denying the other party the expected benefits of the contract. However, in the context of the present motion, the Court established that there was no dispute regarding the deprivation of the expected benefit of the Agreements for the Plaintiffs – namely, the exclusive right to distribute the newspaper within their designated territories. Nevertheless, these cases did not offer support for the specific method used by Gragg in calculating lost revenue.
Held
The Court, after detailed consideration, concluded that the Plaintiffs failed to meet the burden of demonstrating the admissibility of Melissa Gragg’s testimony under Rule 702. Consequently, the Court granted Defendants’ motion to exclude her testimony from the case.
It’s important to note that while the Court made this decision regarding Gragg’s testimony, it hasn’t reached a final decision on the overall outcome of the case. Several other issues in this legal matter remain pending and await resolution by the Court.
Key Takeaways
The admissibility of expert testimony in breach of contract cases relies on its alignment with legal principles governing damages. Damages sought should directly result from the breach and aim to place the wronged party in the financial position they would have occupied if the contract had been fulfilled. Missouri law categorizes breach of contract damages into various types, including actual, consequential, and benefit-of-the-bargain damages. Lost profits, a subset of benefit-of-the-bargain damages, aim to represent the net profits the Plaintiff would have gained if the contract hadn’t been breached. Expert calculations should align with the actual loss caused by the breach. Flawed methodologies that include damages from sources unrelated to the breach’s impact lack reliability under the law. Expert opinions should align with explicit provisions within the contract, and claims for damages must align with contractual entitlements. If expert opinions include calculations or assumptions unrelated to breach-caused damages, they might be deemed irrelevant and unreliable, leading to exclusion. Cited cases should directly support or substantiate the methodology used by the expert in calculating damages. In cases involving the breach of the implied covenant of good faith and fair dealing, the focus should center on whether the breach deprived the party of expected contractual benefits. The burden of proof lies with the party presenting expert testimony to demonstrate its admissibility and alignment with legal principles. If expert testimony fails to meet these standards, it may be excluded from consideration in the case.
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