Hayward Industries, Inc. (the Plaintiff), a company in the pool industry, filed a complaint against competitors (the Defendants) over the sale of aftermarket replacement salt cells for use in Plaintiff’s chlorine generator systems. Chlorine generators, also known as “salt cell systems,” convert dissolved salt into chlorine to sanitize pools. Chlorine generator systems replace the need for liquid or tablet chlorine. The salt cell has a limited use life and is replaced by inserting a new salt cell into the overall system when the prior cell is exhausted. Hayward manufactures and sells pool chlorination systems, and the dispute centers around the Defendants’ alleged violations of the Lanham Act and other claims. The Plaintiff contends that the Defendants’ advertising is misleading and creates confusion among customers, making them believe that the aftermarket products are actually Hayward’s.
The Plaintiff presented Juli Saitz’s expert report in the legal proceedings to bolster their damage claims, particularly focusing on her assessment of lost profits the Plaintiff is entitled to. Saitz conducted an analysis of the relevant market, characterizing it as a two-party market. This characterization suggested that Hayward, the Plaintiff, would have secured sales of replacement salt cells if not for the Defendants’ alleged false advertising and trademark infringement.
The Defendants filed a Motion in Limine, pursuant to Federal Rules of Evidence 702, in order to exclude the testimony of the Plaintiff’s damages expert, Juli Saitz.
Accounting Expert Witness
Juli Saitz is a Certified Public Accountant with nearly 25 years of experience. She has been appointed as an expert in matters of forensic accounting on more than 20 occasions. Saitz has testified in both litigation and arbitration for disputed values in excess of $100 million. She has served as an expert in matters involving business divorces; shareholder disputes; fraud claims; breach of contract matters; patent, trademark, and copyright infringement; and royalty disputes.
Saitz has a background in commercial disputes and financial consulting services related to financial analysis, investigations, and damage analysis. She is experienced across a range of industries including entertainment, real estate, hospitality, food and beverage, consumer products, financial services, and manufacturing.
Discussion by the Court
Federal Rules of Evidence 702 requires that an expert’s opinion testimony be “based on sufficient facts or data” and must be “the product of reliable principles and methods.” Daubert, as was held in Sardis v. Overhead Door Corp., 10 F.4th 268, 281 (4th Cir. 2021), provides non-exhaustive “guideposts” to aid in the required analysis as to whether an expert’s testimony is reliable: (1) whether the expert’s theory or technique “can be (and has been) tested”; (2) whether the theory or technique has been subject to prior review and publication; (3) “the known or potential rate of error” inherent in the expert’s theory or technique; and (4) whether the expert’s methodology is generally accepted in his field of expertise.
The Defendants are seeking to exclude Saitz’s report, asserting three main arguments. Firstly, they claim that Saitz used a patent damages framework (the Panduit test) inappropriately for Lanham Act cases. Secondly, they argue that Saitz did not establish a connection between the Defendants’ alleged infringing conduct and the assumed transferred sales to Hayward, thus failing to show causation as required to support a lost profits award. Lastly, the Defendants assert that Saitz overlooked significant and undisputed evidence, including factors like pricing influencing consumer decisions, the market for the goods at issue—replacement salt cells for pool chlorination systems-not being a two-party structure as assumed, and issues related to Hayward’s supply chain disruptions and inventory during the relevant damages period.
The Court has rejected the Defendants’ motion. The challenges raised by the Defendants regarding Juli Saitz’s expert report were deemed as concerns about the weight of her testimony rather than its admissibility. The Court acknowledged that Saitz’s methodology, which had been employed by other courts, is acceptable in cases involving essentially a two-party market. The ruling suggests that the Defendants can contest Saitz’s methodologies during cross-examination concerning damages but doesn’t deem them grounds for excluding her testimony.
Held
The Court denied Defendants’ motion to exclude Saitz’s expert report and testimony from trial. As of now, the Court has not reached a verdict in this case, as there are still pending issues that await resolution.
Key Takeaways:
The key takeaways from the court proceedings on expert testimony are grounded in the Federal Rules of Evidence, particularly Rule 702, which mandates that expert opinions must be based on sufficient facts and reliable principles and methods. The Daubert standard, as elucidated in Sardis v. Overhead Door Corp., provides guiding criteria to evaluate the reliability of expert testimony, including whether the theory or technique is testable, has undergone prior review, the potential rate of error, and general acceptance in the field.
In this specific case, the Defendants sought to exclude the expert testimony of Juli Saitz, raising three primary objections. Firstly, they argued that Saitz improperly utilized a patent damages framework for Lanham Act cases. Secondly, they contended that Saitz failed to establish a connection between the alleged infringing conduct by the Defendants and the assumed transferred sales to Hayward, thereby lacking causation necessary for a lost profits award. Lastly, the Defendants asserted that Saitz overlooked crucial evidence, such as pricing influences on consumer decisions, the market structure not aligning with the assumed two-party framework, and issues related to Hayward’s supply chain disruptions.
Despite these challenges, the Court denied the Defendants’ motion, emphasizing that the concerns raised pertained to the weight of Saitz’s testimony rather than its admissibility. The Court acknowledged the acceptance of Saitz’s methodology in similar contexts and allowed the Defendants to challenge her methodologies during cross-examination. Saitz, with nearly 25 years of experience, brings expertise in forensic accounting and has been involved in diverse disputes, ranging from business divorces to intellectual property matters. The Court’s decision underscores the importance of cross-examination in scrutinizing expert testimony, granting the Defendants an opportunity to challenge Saitz’s methodologies and findings while allowing her testimony to remain admissible.
Case Details
| Case Caption | Hayward Industries, Inc. V. Blueworks Corporation Et Al |
| Docket Number | 3:20cv710 |
| Court | United States District Court, North Carolina Western |
| Citation | 2024 U.S. Dist. LEXIS 9511 |
| Order Date | January 17, 2024 |
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