This action is about holding Chargebacks911 (“CB911”), its CEO (Monica Eaton) and its former CEO (Gary Cardone) accountable for their roles in keeping a massive online Keto diet pill scam (the “Keto Racket”) profitable, viable, and undetected while it victimized Plaintiffs and tens of thousands of other consumers across the country.
Troy Carrothers is Defendants’ rebuttal expert to Plaintiffs’ payment processing industry expert. Plaintiffs took issue with certain opinions given by Carrothers, including that “‘Value Added Promotions used by [Global e-Trading] before 2019 are commonly used marketing programs,” as well as statements that Plaintiffs maintain are impermissible legal conclusions.
Lisl Unterholzner, an accountant and certified fraud examiner, is Defendants’ rebuttal damages expert. Plaintiffs took issue with certain opinions given by and analysis performed by Unterholzner, including her discussion of a The Fulfillment Lab (“TFL”) spreadsheet with shipping addresses and her MID-by-MID and time-limited calculation of damages attributable to Global e-Trading.
Financial Expert Witness
Troy Carrothers is a financial services and retail leader with approximately thirty years of experience working in a variety of leadership roles in retail payments. These responsibilities have spanned operational leadership positions with responsibility for functions with small teams such as Risk Management or Financial Planning & Analysis in payment issuance and acceptance to leading multi-billion dollar retail credit and debit portfolios with thousands of employees.
Lisl Unterholzner is the Managing Partner at Oscher Consulting, PLLC, a Certified Public Accounting firm. Unterholzner is a Certified Public Accountant (“CPA”) and has been accredited in Business Valuation by the American Institute of CPAs. She has also been accredited as a Certified Fraud Examiner. Her experience includes forensic accounting investigations, performing business valuations, and the analysis of economic damages.
Plaintiffs sought to preclude Carrothers from “offering testimony on his general understanding of the term Value Added Promotions, or VAP, including how other companies in the industry may use the term.”
The Court held that Carrothers’ testimony about his understanding of VAP used by other companies does not match the descriptions of Global e-Trading’s VAP program within Global e-Trading’s own internal documents. Moreover, Carrothers admitted during his deposition that he did not “know the details of [Defendants’] VAP program from when they ran it.”
While the issues Plaintiffs pointed out give them ample ammunition for cross-examination, the Court decided that they still did not warrant disqualifying Carrothers from testifying as an expert.
The Court also disagreed with Plaintiffs as to Carrothers’ statement that Global e-Trading “paused service several times” for Brightree. In other words, Carrothers is merely pointing out that Global e-Trading may have had pauses in its provision of services to Brightree, which is true and potentially relevant to Defendants’ defense regarding intent. The Court did not find this statement so irrelevant as to be kept from the jury.
However, to the extent Carrothers intended to offer the legal conclusion that he has seen no evidence in the record to support that Defendants’ VAP program was fraudulent, the Court agreed with Plaintiffs.
Lisl Unterholzner
Plaintiffs sought to preclude Unterholzner from testifying about two subjects. First, they argued that Unterholzner should not testify “about whether any of the customer, email, or shipping data in the TFL Spreadsheet is valid” or offer “any opinions or conclusions about the deliverability of any shipment made by The Fulfillment Lab or the Keto Entities.” Second, they sought to prevent Unterholzner from “parsing or calculating damages in a way that is based on a piecemeal analysis of Defendants’ activities with respect to the overall Keto enterprise.”
The Court disagreed with Plaintiffs. Because Unterholzner is a rebuttal expert, it is perfectly appropriate for her to question the documents upon which the Plaintiffs’ damages expert relied.
To the extent Unterholzner intended to opine that Defendants can only be liable for damages incurred for certain times during which Global e-Trading was providing services to Brightree, the Court excluded that opinion as irrelevant.
However, to the extent Unterholzner’s report and opinions addressed flaws in Plaintiffs’ expert’s damages calculation because of incomplete data, this opinion is permissible. Since this analysis is proper for a rebuttal expert, the Court will not exclude it.
Held
The Court granted in part and denied in part the motion to limit the testimony of Defendants’ experts Troy Carrothers and Lisl Unterholzner.
Key Takeaways:
No witness may offer legal conclusions or testify to the legal implications of conduct.
Despite Plaintiffs’ legitimate questions, the supposed problems with Unterholzner’s methodology can be explored on cross-examination.
Plaintiff, Yoel Weisshau challenged the constitutionality, under the dormant Commerce Clause, of the Port Authority’s toll and fare increases, in effect since September 18, 2011, on all the Port Authority’s bridges and tunnels within the Interstate Transportation Network (“ITN”).
Plaintiff filed a motion to strike Elizabeth McCarthy’s affidavit and cash flow analysis, as well as her reply to Plaintiff’s expert report. By his motion, Plaintiff additionally sought an order “precluding the submissions of the expert witness Elizabeth McCarthy, precluding the Port Authority of New York and New Jersey from submitting any documents and printouts, calculations, and data downloaded from its General Ledger, and sanctioning Defendant for withholding discoverable information.”
As CFO, McCarthy is responsible for overseeing, managing, and directing the Port Authority’s financial and accounting functions. This includes responsibility for over $5 billion of annual revenues, $3 billion of annual operating budget expenses, and the annual Capital Plan investments in support of the agency’s 2017 to 2026 Capital Plan.
Discussion by the Court
Plaintiff argued that McCarthy’s “cash flow analysis is pure hearsay and inadmissible for purposes of trial and summary judgment.” For Plaintiff, the information is hearsay because McCarthy “does not have personal knowledge of the figures cited in [the cash flow analysis] to be accurate” since her staff prepared information on her behalf. However, Rule 703 states that an expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed.
The Court held that McCarthy’s staff made her aware of information from the General Ledger, which they reviewed and discussed. Thus, the Court declined to find here that McCarthy’s cash flow analysis is inadmissible hearsay.
Held
The Court denied Plaintiff’s motion to strike Elizabeth McCarthy’s affidavit and cash flow analysis.
Key Takeaway:
As per 703, McCarthy’s “cash flow analysis” is not hearsay because McCarthy’s staff made her aware of information from the General Ledger, which they reviewed and discussed.
Case Details:
Case Caption:
Weisshaus V. The Port Authority Of New York And New Jersey Et Al
Docket Number:
1:11cv6616
Court:
United States District Court for the Southern District of New York
Massimo Motor Sports, LLC (“Massimo”) and the Defendants were engaged in the manufacturing and sale of sports vehicles, such as utility terrain vehicles (UTVs) and all-terrain vehicles (ATVs). The moving Defendants included Shandong Odes Industry Co., Ltd. (“Shandong”), Odes Usa Inc. (Cal) (“Odes Cal.”), Odes Usa Inc. (Tex) (“Odes Tex.”), Lil Pick Up, Inc. (“Lil Pick Up”), SMG Distribution & Associates, Inc. (“SMG”), 14078 Meridian, Parkway Inc. (“Meridian”), and Nathan D. Threet (“Threet”).
Plaintiff Massimo acted as a distributor of specific ATVs and UTVs in the United States for Shandong, a manufacturer while Lil Pick Up, Meridian, SMG, and Odes Cal. worked in various capacities to facilitate the sales and distribution of these products. Threet served as the Chief Operating Officer for Massimo before accepting a consulting position for Odes Cal. Following the dissolution of the relationship between Massimo and Shandong, Massimo initiated legal proceedings alleging trademark infringement, breach of contract, trade secret misappropriation, unfair competition, cybersquatting, tortious interference, false designation of origin, breach of the implied covenant of good faith and fair dealing, breach of the duty of loyalty, and unjust enrichment.
Massimo’s expert, Bryan M. Van Uden, served reports calculating Massimo’s damages. The Defendants moved to strike and exclude some of Uden’s opinions, including: (1) all damage opinions relating to Massimo’s trademark infringement, false designation of origin, and unfair competition claims, (2) all damage opinions relating to Massimo’s breach-of-contract claim against Threet, (3) any damage opinion relating to Massimo’s claims for trade secret misappropriation and cybersquatting, (4) any damage opinion assessing damages against SMG or Meridian, and (5) any damage opinion relating to trademark infringement, false designation of origin, or unfair competition calculated against Threet.
Defendants’ expert, Christopher Earle also served reports assessing the damages. On November 15, 2022, the parties had exchanged their experts’ opening reports regarding damages. By January 17, 2023, they had also exchanged their rebuttal expert reports. Then, on April 4, 2023, the Defendants had served Earle’s first amended supplemental report, followed by Massimo’s service of its supplemental report and supplemental rebuttal report on April 17, 2023. Earle’s opening report on November 15, 2022, rebuttal report on January 17, 2023, and first amended supplemental report on April 4, 2023, would be collectively referred to as “Earle’s Initial Reports. The Court’s scheduling orders had mandated completion of discovery by May 26, 2023, and filing of any Daubert motions by July 21, 2023. However, on May 24 and May 26, 2023, the Defendants provided Massimo with nearly 500 new documents containing financial data. Subsequently, Massimo deposed Earle on May 31, 2023. Then, on July 14, 2023, Defendants served Massimo with Earle’s second amended report and a new rebuttal report, referred to as “Earle’s July 2023 Reports”. Massimo had not been given the opportunity to depose Earle regarding these new reports, which Massimo argued were untimely. Nonetheless, the Defendants contended that the Court’s scheduling order had allowed exchanging reports until September 6, 2023.
On July 21, 2023, Massimo had filed a motion to exclude certain aspects from Earle’s Initial Reports, specifically targeting (1) Earle’s affirmative testimony about Shandong’s breach of contract counterclaim, and (2) Earle’s rebuttal testimony regarding the Defendants’ costs associated with selling vehicles that Massimo claimed infringed its trademarks. Following this, Massimo had also filed a motion to strike Earle’s July 2023 Reports, arguing that they were untimely and consisted of entirely new opinions and documents.
Financial Expert Witness
Bryan M. Van Uden serves as the Managing Director at Ocean Tomo, a division of J.S. Held, where he leverages over 20 years of expertise in financial consulting. His specialization lies in valuations, dispute analysis, and strategies aimed at enhancing business operations and profitability. Van Uden has a wide array of experience in patent infringement, trademark infringement, copyright infringement, misappropriation of trade secrets, securities violations, veil piercing, breach of contract, personal injury, wrongful termination, unfair business practices, and business and intellectual property valuation. He pursued his Master of Business Administration from the University of Mississippi and also holds a Bachelor of Applied Science in Strategic Management from Louisiana State University.
Business Valuation Expert Witness
Christopher Earle, the Managing Director of Business Valuation at Reynolds & Earle, LLC, has over 20 years of experience in overseeing and conducting analyses related to various aspects of commercial litigation, intellectual property infringement litigation, insurance claims, business disputes, and valuation disputes. His extensive litigation case background encompasses areas such as lost profits, incremental profits, fixed and variable costs, valuation, diminution in value, and apportionment. Earle earned his Master of Business Administration from the University of Dallas, Graduate School of Management, after graduating with a Bachelor of Arts in Economics from the University of Dallas, Constantine College.
Discussion by the Court
The motion to exclude Van Uden’s opinions had raised three key issues: (1) whether or not Van Uden needed to calculate damages for trademark infringement using separate calculations for each individual trademark, (2) whether the lost profits resulting from Threet’s alleged breach must account for other variables potentially influencing lost sales, and (3) whether Van Uden should be prevented from offering damages opinions for certain causes of action that the Defendants believed he had not already addressed.
The Defendants argued that Van Uden’s opinions regarding Massimo’s trademark infringement claims were flawed citing his failure to break down his calculations separately by each of Massimo’s alleged trademarks. However, the Court noted that the Defendants did not cite any case law where a Court had excluded a damages expert’s report for this reason. Massimo’s trademark infringement claim involved alleged infringement upon eight of its trademarks, and Van Uden’s damages calculation aggregated the Defendants’ infringing sales for all eight of Massimo’s alleged trademarks. The Defendants argued that this method was unreliable because Massimo needed to establish likelihood of confusion for each trademark independently for liability purposes. However, the Court disagreed, finding no inherent unreliability in an aggregate damages calculation. Therefore, the Court denied the Defendants’ motion to exclude Van Uden’s damages calculation based on aggregating all of the Defendants’ alleged infringing sales.
The Defendants argued that Van Uden’s opinions on lost profits resulting from Threet’s breach of contract and the Defendants’ tortious interference were unreliable considering they ceased to eliminate alternative causes of the lost profits. However, the Court disagreed, stating that ruling out potential alternative variables was not an admissibility issue, noting that many cases in the district had rejected this argument. Therefore, the Court denied the Defendants’ motion regarding Van Uden’s Threet-related lost profits calculations.
The Defendants sought the Court’s instruction that Massimo could not apply Van Uden’s damages opinions to certain Defendants against whom Massimo had not put forth specific claims. They specifically requested the exclusion of any Van Uden opinions supporting Massimo’s trade secret misappropriation claims against Lil Pick Up or Meridian, as Massimo’s second amended complaint had excluded them as Defendants as to those claims. However, as there was no such existing Van Uden opinion to exclude, the Court declined to make that kind of instruction at the time. Additionally, the Court refused to prohibit Van Uden from offering any damage testimony or evidence against SMG or Meridian, as the Defendants had not adequately demonstrated that he failed to opinions against these Defendants. Therefore, the Court denied the Defendants’ motion to exclude opinions that Van Uden had not made and potential damage opinions against SMG and Meridian.
The Court initially addressed the timeliness concern regarding Earle’s July 2023 Reports. Due to a prior amended scheduling order, which set expert disclosures after the deadline for motions to strike (July 21, 2023) and the close of discovery (May 26, 2023), the parties faced a dilemma. In fairness, the Court decided to grant Massimo the opportunity to redepose Earle on Earle’s July 2023 Reports. Massimo could then file any motion to strike or exclude after the deposition, and Massimo’s own expert could serve a rebuttal report to Earle’s second amended report. Consequently, the Court denied the motion to clarify/amend the Court’s scheduling order and strike Christopher Earle’s July 14, 2023 expert reports.
The Court, while addressing the the timeliness issue regarding Earle’s July 2023 Reports in Massimo’s motion to exclude, noted that both parties acknowledged that Earle’s July 2023 Reports significantly altered his Initial Reports. The Defendants contended that the new reports mooted a lot of the issues raised in Massimo’s motion to exclude because Earle’s July 2023 Reports addressed errors raised in Massimo’s motion and were based on new information and documents. Massimo’s motion focused on several aspects: Firstly, it sought to exclude Earle’s affirmative testimony on Shandong’s breach of contract counterclaim, including his relief from royalty opinion deeming it irrelevant and unreliable, as well as his unjust enrichment calculation. Additionally, Massimo aimed to exclude Earle’s rebuttal testimony regarding the Defendants’ costs associated with selling products that allegedly infringed its trademarks.
Regarding Earle’s relief from royalty calculation, both parties acknowledged that Earle’s July 2023 Reports significantly altered his relief from royalty opinion in the Initial Reports. Consequently, the Court determined that Earle’s relief from royalty opinion in his Initial Reports was superseded, rather than supplemented, by his opinions in the July 2023 Reports. Thus, the Court deemed Massimo’s motion to exclude Earle’s relief from royalty opinion as moot. Massimo was granted the opportunity to redepose Earle on his July 2023 Reports. Massimo could subsequently file a motion to strike or exclude, if desired.
Earle’s report analyzed the Defendants’ damages for their breach-of-contract counterclaim using an unjust enrichment calculation, which involved estimating Massimo’s profits from sales allegedly resulting from Massimo’s improper use of the Defendants’ confidential information. The central issue revolved around whether Texas law allowed this disgorgement remedy for breach-of-contract claims as restitution damages, especially when an express contract covered the parties’ dispute, as it prohibited unjust enrichment claims in such instances. The Court cited Hoffman v. L & M Arts, 838 F.3d 568, 585 (5th Cir. 2016), where the Fifth Circuit, ruled that the Supreme Court of Texas would reject a disgorgement remedy for breach-of-contract claims. It reasoned that breach-of-contract damages should primarily aim to compensate for the claimant’s actual losses, whereas disgorgement sought to deprive the wrongdoer of any ill-gotten gains instead of compensating the victim. Consequently, disgorgement was not deemed a suitable remedy for the Defendants’ breach-of-contract counterclaim. Thus, the Court partially granted Massimo’s motion to exclude Earle’s expert testimony pertaining to his unjust enrichment methodology for the Defendants’ breach-of-contract counterclaim.
Regarding Earle’s rebuttal testimony concerning the Defendants’ costs associated with selling products allegedly infringing Massimo’s trademarks, the Defendants argued that Earle’s July 2023 Reports supplemented and corrected the issues raised by Massimo, as they were based on cost data for all 20 accused products, not just the partial data sought to be excluded by Massimo. Massimo also acknowledged that Earle’s July 2023 Reports addressed this issue with new information. The Court deemed Massimo’s motion to exclude Earle’s testimony on this matter moot based on his opinions in the July 2023 Reports, similar to the reasonable royalty opinion. Massimo was allowed the opportunity to redepose Earle on these reports and subsequently file a motion to strike or exclude, if desired.
Held
The Court denied the Defendants’ motion to strike and exclude certain expert opinions of Bryan M. Van Uden, as well as Massimo’s motion to clarify or amend the Court’s scheduling order and strike Christopher Earle’s July 14, 2023 expert reports. Additionally, the Court granted in part Massimo’s motion to exclude Earle’s unjust enrichment methodology for the Defendants’ breach-of-contract counterclaim, while otherwise denying the motion. Massimo was allowed to redepose Earle on Earle’s July 2023 Reports and subsequently file a motion to strike or exclude, if required.
The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.
Key Takeaways
Firstly, the Court upheld the reliability of aggregating damages across multiple trademarks in a trademark infringement case, rejecting the argument that damages must be separately calculated for each individual trademark. This decision emphasized that establishing likelihood of confusion for each trademark independently isn’t necessary for liability purposes. Secondly, the Court clarified that ruling out potential alternative variables influencing lost profits or damages is not a prerequisite for the admissibility of expert testimony, noting that many cases have rejected this argument. Additionally, the Court underscored the importance of expert opinions aligning with the specific claims made against each defendant, refusing to exclude opinions where no existing opinions targeted specific Defendants or where inadequacies hadn’t been demonstrated. Regarding the timeliness of expert reports, the Court emphasized adherence to court orders and granted opportunities for redeposition or further motions if significant changes were made to expert opinions. Furthermore, the Court highlighted the necessity for expert opinions to align with applicable legal principles and remedies, particularly concerning disagreements over the appropriateness of certain remedies, such as disgorgement for breach-of-contract claims. Lastly, the Court noted that motions to exclude may be deemed moot if subsequent expert reports address and correct issues raised in those motions, granting parties opportunities for further actions based on updated expert opinions.
Case Details
Case Caption
Massimo Motor Sports, LLC v. Shandong Odes Indus. Co., Ltd.
Docket Number
3:21cv2180
Court
United States District Court, Texas Northern
Citation
2024 U.S. Dist. LEXIS 20343, 2024 U.S. Dist. LEXIS 20345
