On June 15, 2020, Michael J. Fitzgerald and Ronda and Will McNae finalized a Settlement Agreement to resolve claims related to alleged rape and sexual assault. This agreement included Fitzgerald paying a sum of money and, in return, the McNaes releasing their claims, agreeing not to contact Fitzgerald’s employer, SoftwareONE, refrain from writing about him directly and indirectly, and avoid disparaging him. Fitzgerald is now pursuing the only claim remaining in this case, a breach of contract claim against Ronda McNae for breach of the Settlement Agreement.
On March 5, 2025, this Court entered its Order Granting Plaintiff Fitzgerald’s Motion for Partial Summary Judgment as to Liability, finding that Defendant Ronda McNae breached the Settlement Agreement. This case is soon proceeding to trial to determine damages Plaintiff has sustained from Defendant Ronda McNae’s breach of the Settlement Agreement.
Plaintiff Fitzgerald disclosed three experts in connection with this case. First, he disclosed Sheri Fiske, a certified public accountant, who will testify to Fitzgerald’s purported economic damages. Second, Plaintiff disclosed Dr. Michael DiTomasso, a forensic psychologist, to testify as to his non-economic, reputational damages. Third, Plaintiff disclosed Dr. Kim Fromme, a clinical psychologist to testify that Defendant Ronda McNae’s memory of having been raped and assaulted is false, and that the parties engaged in consensual sexual relations. Defendant Ronda McNae seeks to exclude the expert opinions of these three expert witnesses pursuant to Federal Rule of Evidence 702.
Accounting Expert Witness
Sheri Fiske Schultz brings extensive experience to the table, with over 35 years in public accounting and more than 30 years of specialized expertise in the fields of forensic accounting and business valuations.
In addition to being a licensed CPA, Sheri holds the designation of Accredited in Business Valuation (ABV) and is Certified in Financial Forensics (CFF) by the American Institute of Certified Public Accountants (AICPA).
Michael DiTomasso has specialized in the clinical and forensic evaluation of children and their parents in cases involving sexual and physical abuse, neglect, domestic violence, and systemic family pathology. He has been recognized by various courts as an expert in the areas of Child Abuse and Neglect, Domestic Violence, and Family Functioning on hundreds of occasions. DiTomasso also handles many Juvenile Delinquency and Adult Criminal cases. He holds a Ph.D. in Clinical Psychology from The Universityof Miami.
Kim Fromme, Ph.D., is Professor Emeritus of Clinical Psychology at The University of Texas at Austin. She has over 120 peer-reviewed publications focused on alcohol use and the effects of alcohol intoxication, including blackouts, cognitive processes, and behavioral risks. Consequently, she provides unique expertise in legal cases that involve alcohol, behavior, thinking, and memory.
Fromme has been qualified to opine on these matters in 20 civilian criminal cases, 16 civil and Title IX matters, and 53 military courts-martial. She has successfully passed three Daubert challenges.
Initially, the Defendant contended that Fiske’s calculations for lost quarterly and annual bonuses were unreliable and not useful. Their primary argument was that Fiske could not accurately determine Fitzgerald’s target bonus earnings. In response, the Plaintiff asserted that the Defendant overlooked the 2022 Salary Review Letter, which guaranteed specific bonus amounts (100,000 GBP quarterly and 120,000 GBP annually) as well as a a salary increase independent of company performance or Fitzgerald’s individual target achievement. Consequently, the Court rejected the Defendant’s motion on this particular point.
Defendant argued that Fiske’s calculations of the lost value of performance share units (PSU) are unreliable. Specifically, Defendant argued that Fiske’s initial calculation was incorrect. Later, Fiske updated her estimate prior to her deposition to reflect a lower, more conservative estimate of lost PSUs based on more recent information provided to Fiske from SoftwareONE dated June 6, 2023, which Fiske received after issuing her May 15, 2023 Damages Report but before her deposition on June 7, 2023.
Nonetheless, Defendant still sought to exclude the supplemental report arguing that Fiske does not know the basic facts to allow her to express a reliable opinion about the PSUs. However, when Fiske received the updated information from SoftwareONE, Fiske compared the number of PSUs Fitzgerald actually received to the number he was promised. Therefore, the Court, once again, rejected the Defendant’s motion as to this aspect.
The Court defers ruling on the following issues:
Whether Fiske’s testimony as to calculation of the full contract amount is not helpful
Whether Fiske should not be permitted to testify about facts and evidence that are irrelevant to her purported calculations.
Should Plaintiff seek to introduce such testimony that Defendant moves to exclude, the parties shall argue this issue to the Court outside the presence of the jury.
Dr. Michael DiTomasso
Plaintiff Fitzgerald “sought damages for the reputational harm caused by McNae both in the industry he spent his life working in, and at SoftwareONE, which he dedicated his professional life building” and “sought damages due to the personal harm he has suffered to his mental health, emotional wellbeing, and enjoyment of life.”
Defendant argued that DiTomasso was unqualified to offer an opinion on damages, specifically because he is not board certified, is not an expert in the technology market, and is not an occupational therapist. This Court agreed with Defendant that DiTomasso was unqualified to testify as to reputational damages. When asked what qualifications he has to opine on the amount of damages that should be awarded in this case, DiTomasso himself stated “none.” As to emotional damages, this Court held in its Order Granting in Part and Denying in Part Defendant Ronda McNae’s Motions in Limine that any evidence or testimony related to emotional distress will be excluded.
Kim Fromme
Defendant sought to exclude Fromme’s testimony arguing it is unreliable, unhelpful, and that the issue of whether a rape occurred is for the determination of the jury.
However, Fromme’s testimony will be necessary only if the defense of duress is permitted. Since this Court ruled in its Order Granting Plaintiff’s Motion for Summary Judgment that Defendant Ronda McNae’s duress defense will not be permitted, the Court declared this issue moot.
Held
The Court granted in part and denied in part the Defendant Ronda McNae’s motion to exclude the opinions of Sheri Fiske Schultz, Dr. Michael DiTomasso, and Dr. Kim Fromme.
Key Takeaway:
Fiske’s calculations of lost quarterly and annual bonuses are not unreliable just because the Defendant overlooked crucial piece of evidence i.e the 2022 Salary Review Letter.
DiTomasso is unqualified to offer an opinion on damages, specifically because he is not board certified, is not an expert in the technology market, and is not an occupational therapist.
This case involves a dispute over the alleged misuse of funds from two New Mexico payday lending businesses, Cashco, Inc. and Budget Payday Loans, L.P. The Light Defendants (John Ernest Light, Tina S. Light, and Investors Services, Inc.) were hired to manage the financial operations of these businesses, including record-keeping and transaction processing.
They were given access to the operating accounts in exchange for a monthly fee. The owners of the businesses (Randall C. Roche, Ronald Tsuchiyama, Michael Harada, and William Montelongo), through their entity HiTex, LLC, claim that the Light Defendants abused this access, diverting approximately $360,000 for their own use, rather than distributing it to the rightful owners. HiTex, LLC, has filed a lawsuit asserting claims of breach of contract, breach of fiduciary duty, conversion, fraud, unjust enrichment, and negligence, seeking $320,000 in damages.
Plaintiff sought to exclude the opinions and testimony of the Light Defendants’ retained expert, Ted Blodgett. The Light Defendants, in turn, sought to exclude the opinions and testimony of Plaintiff’s retained expert, David Bloom.
Accounting Expert Witnesses
Ted Blodgett, managing partner of Gray, Blodgett & Company, PLLC, possesses 30 years of public accounting expertise. He specializes in tax planning, business valuations for estate and gift tax, and litigation support. A seasoned expert witness, he regularly testifies in Oklahoma courts on complex accounting and tax matters, including marital dissolution.
David Bloom has over 40 years of public accounting experience as a private business executive, business consultant, and forensic accountant, has served as Chief Financial Officer, interim Chief Financial Officer, and consultant to private businesses of various sizes on matters of taxation, accounting policy, and audit. He is an active Certified Public Accountant in the State of Oklahoma, license number 15384 and a graduate from Southern Nazarene University.
Blodgett’s expertise is unchallenged by the Plaintiff, and the Court confirmed that Blodgett’s accounting and valuation background qualified him to provide expert opinions.
Blodgett’s Opinions are Sufficiently Reliable
Plaintiff argued that Blodgett’s analysis is flawed, claiming he failed to adequately consider the case’s documents and evidence. Specifically, they criticized his hypothetical, stating that “Plaintiff cannot have suffered damages if a distribution was recorded as a distribution payable and then later distributed,” rendering his opinions “inconsistent with the evidence produced.”
The Light Defendants countered that the Plaintiff’s interpretation of Blodgett’s hypothetical “are contrary to Blodgett’s own explanation of his hypothetical.” They further asserted that Blodgett’s limited scope of work justified reviewing only a “narrow set of documents,” and therefore, any omissions affect “the weight of Blodgett’s testimony, not its admissibility.”
The Court concurred with the Light Defendants. It found that the Plaintiff’s concerns primarily address the weight of Blodgett’s testimony, not its admissibility. The fact that Blodgett did not review all evidence deemed relevant by the Plaintiff does not automatically disqualify his testimony. The Plaintiff retained the right to challenge Blodgett’s analysis during cross-examination.
Given the limited scope of Blodgett’s testimony, the Court concluded that his conclusions are reasonably based and will aid the fact-finder. The Plaintiff’s objections pertain to the “weight of Blodgett’s testimony” and are more appropriately explored during cross-examination at trial.
The Bloom Motion
Bloom is qualified to offer his opinions
The Light Defendants contended that although Bloom may possess general accounting qualifications, he lacks the specific expertise in “forensic accounting, financial forensics, and/or fraud investigation” necessary to testify in this case. Consequently, they argue that his opinions should be excluded. Conversely, the Plaintiff asserts that Bloom’s “rigorous education” as a Certified Public Accountant qualifies him. Furthermore, addressing the Light Defendants’ claim of insufficient specialized knowledge, the Plaintiff cites the Association of International Certified Professional Accountants, stating that “all CPAs, including Bloom, possess the specialized knowledge and investigative skills required to perform forensic accounting services.”
Ultimately, after reviewing Bloom’s report and deposition testimony, the Court, even though acknowledging it’s a close decision, finds Bloom qualified to offer opinions on the topics presented. Indeed, while Bloom may not have the specific forensic accounting credentials the Light Defendants deem crucial, this perceived deficiency relates to the weight a jury should assign to his testimony, rather than its admissibility. Therefore, the Court determines that Bloom is qualified by knowledge, skill, experience, training, or education to provide the opinions outlined in his report.
Bloom’s Opinions are Sufficiently Relevant
The Light Defendants further argued that, in their view, Bloom’s opinions lacked relevance, asserting they did not “fit with the issues of this case.” In particular, they claimed Bloom addressed matters beyond the “four (4) transactions giving rise to the distributions allegedly owed to the Owners and the damages the Owners sustained in not receiving those distributions.”
On the other hand, the Plaintiff maintained that Bloom’s challenged opinions are relevant to demonstrate “that Defendants no longer have access to the funds intended to be used for distributions and, therefore, such distributions cannot be paid to Plaintiff.” Furthermore, the Plaintiff asserted that Bloom’s opinions bolster their theory that the Defendants commingled funds, effectively rendering them untraceable.
Ultimately, after careful consideration, and for reasons largely consistent with those discussed later, the Court deemed Bloom’s opinions sufficiently relevant. To be sure, the Light Defendants retained the right to scrutinize the perceived weaknesses in Bloom’s analysis during cross-examination, particularly regarding the four transactions outlined in the Complaint, or any other perceived deficiencies. Nevertheless, the Court is convinced that Bloom’s testimony is “sufficiently tied to the facts of the case [such] that it will aid the jury.”
Bloom’s opinions are sufficiently reliable
The Light Defendants then argued that Bloom’s opinions lacked reliability, claiming they did not “rely upon any explained methodology.” Specifically, they criticized Bloom for failing to “connect the dots between the materials he reviewed and his own education or experience to then detail the supporting bases for his opinions.”
Conversely, the Plaintiff asserted that “any trained CPA with Bloom’s experience and education would be able to conduct the same analysis Bloom had done with the same documents.” Moreover, the Plaintiff contended that, because Bloom had based his opinions on both his experience and the case’s documents, rather than solely one or the other, his opinions were sufficiently reliable.
Ultimately, after careful consideration, the Court determined that Bloom’s opinions were sufficiently reliable, and that the Light Defendants’ arguments pertained to the weight of those opinions, not their admissibility. In essence, the Court disagreed with the assertion that Bloom’s report “was unreliable because [he] either did not employ or failed to disclose any particular methodology.”
Held
The Court denied the Plaintiff’s Daubert motion to strike the testimony of Defendants’ expert witness Ted Blodgett.
The Court denied the Defendants John Ernest Light, Tina S. Light, and Investors Services, Inc.’s motion to exclude the testimony of the Plaintiff’s expert witness David Bloom.
Key Takeaway:
Despite challenges regarding the scope of reviewed materials, specialized expertise, relevance, and methodology, the Court found both experts, Blodgett and Bloom, qualified to offer their opinions. The Court emphasized that critiques concerning the experts’ analysis, including perceived omissions or methodological shortcomings, primarily affect the weight of their testimony, not its admissibility. Consequently, the Court deemed cross-examination the appropriate venue for addressing these concerns, ensuring the jury could properly evaluate the experts’ credibility and the strength of their conclusions.
In a recent legal battle between Mo Pow and Crypto, the spotlight has fallen sharply on expert testimony, specifically the lost profits analysis provided by Mo Pow 4’s expert, David A. Hall. This case, fundamentally about two failed digital currency mining agreements, has turned into a fascinating examination of expert witness reliability and the challenges to their methodologies.
Firstly, to set the stage, the Court initially found breaches of contract by both parties and requested further expert opinions to quantify damages. Mo Pow 4 subsequently engaged Hall, who presented a report claiming $5,374,000 in lost profits. However, Crypto immediately raised concerns, focusing on Hall’s decision to use Odessa, Texas, as the hosting site for his calculations, rather than Strafford, Missouri, as stipulated in the second agreement.
Consequently, Crypto filed a motion to strike Hall’s opinions, arguing that this substitution was a deliberate attempt to inflate damages, and further claimed that Hall’s methodology was unreliable, based on undisclosed documents, and failed to account for crucial contractual terms. Conversely, Mo Pow 4 contended that Crypto was merely challenging Hall’s assumptions, not his methodology, and asserted their right to relocate the mining site.
Accounting Expert Witness
David Hall is a Managing Director with Alvarez & Marsal Disputes and Investigations in Denver. He has more than 30 years of experience providing expert consulting and testimony services to clients on accounting, economic, financial and damages issues.
Hall earned a bachelor’s degree from the University of Michigan and an MBA (highest honors) from the University of Texas at Austin. A Certified Management Accountant (CMA), Certified Valuation Analyst (CVA) and a Certified Fraud Examiner (CFE), he is also a member of the Institute of Management Accountants, the National Association of Certified Valuators and Analysts, the National Contract Management Association and the Association of Certified Fraud Examiners.
Crypto’s primary objection centered on Hall’s use of Odessa, Texas, as the location for calculating lost profits, instead of Strafford, Missouri, as specified in the second agreement. They argued that this substitution was a deliberate attempt to inflate the lost profits figure, implying that the Texas site was chosen precisely because it would yield a higher damage calculation. In essence, they accused Hall of manipulating his analysis to favor Mo Pow 4. Crypto broadly claimed that Hall’s entire calculation was based on an unreliable methodology.
This objection encompassed concerns about the assumptions Hall made, the variables he included or excluded, and the overall approach he took to calculating lost profits. Further, Crypto asserted that Hall relied on documents and information related to the Texas site that were not timely disclosed during the discovery process, arguing that this constituted a violation of discovery rules and prejudiced their ability to effectively challenge Hall’s opinions. Finally, Crypto argued that Hall’s opinions failed to consider various terms of the Second Agreement, additional costs, and rate variances that would significantly impact his calculations, pointing to specific omissions, such as the use of inappropriate electrical rates, failure to account for “uptime” variations, and neglecting adverse market conditions.
Plaintiff’s Counterarguments
In opposition, Mo Pow 4 countered that Crypto’s objections were fundamentally challenges to the assumptions and variables that Hall chose to consider, rather than to the underlying methodology itself. They argued that Hall’s use of the AICPA-approved incremental profit method was sound, and that Crypto’s concerns were simply disagreements about the inputs used in that method. Mo Pow 4 asserted that they had the authority to unilaterally relocate the cryptocurrency mining site to Texas after Crypto failed to perform under the Second Agreement, providing an explanation as to why the relocation would have occured, and that even though the notice was not sent, it was still a valid assumption.
Mo Pow 4 explained that the documents in question did not become relevant until Hall performed his expert work, which occurred after the initial discovery period. They also pointed to the fact that the Court had reopened expert discovery, and that they provided the documents as soon as possible, arguing that their supplemental disclosure was substantially justified, given the circumstances and the Court’s prior orders. Finally, Mo Pow 4 argued that many of Crypto’s concerns, such as the use of specific electrical rates and the omission of certain variables, were matters of weight that could be addressed through cross-examination, rather than grounds for excluding Hall’s testimony altogether, emphasizing that the Court’s role as a gatekeeper was not to determine the accuracy of Hall’s opinions, but rather to ensure that his methodology was reliable.
Analysis
The Court found Hall’s expert report to meet the reliability standards of Rule 702, despite the challenges raised by Crypto. Thus, while the use of the Texas site and other assumptions were subject to scrutiny, they did not render the report fundamentally unreliable. Therefore, the Court emphasized that vigorous cross-examination and the presentation of contrary evidence were the appropriate remedies for any perceived weaknesses in the expert testimony.
Since the motion was referred to a magistrate judge, a final determination was not made as to whether Mo Pow’s supplemental disclosures were substantially justified or harmless out of an abundance of caution, and only a recommendation was provided to the assigned district court judge. The magistrate judge recommended that the Court find Mo Pow’s failure to provide certain documents Hall relied upon in his report until after his report issued, was substantially justified.
Held
The Court found that Mo Pow’s expert, Mr. David A. Hall, and the opinions presented in his expert report, met the requirements of Federal Rule of Civil Procedure 26(a)(2)(B) and Federal Rule of Evidence 702. Moreover, the magistrate judge recommended that the presiding judge determine that Mo Pow’s failure to provide certain documents relied upon by Hall to support his lost profits damage opinion until after the close of discovery had been substantially justified.
Key Takeaway:
The Court, acting as a gatekeeper under federal rules, found Hall’s qualifications and methodology met reliability standards, distinguishing between disputed assumptions affecting evidence weight and fundamental flaws impacting admissibility. Ultimately, the Court emphasized that vigorous cross-examination, rather than exclusion, was the appropriate remedy for perceived weaknesses in the expert’s analysis.
Polypack sued Nestlé for breach of contract and breach of implied covenant of good faith, claiming Nestlé failed to make final payments for equipment and service fees. Nestlé counterclaimed, alleging defective equipment and failure to meet performance requirements, resulting in significant financial losses, including lost profits, additional labor costs, and storage fees.
Nestlé retained David R. Tantlinger, Jr., a Certified Public Accountant (CPA), to provide expert testimony on the damages incurred due to Polypack’s alleged equipment failures. Polypack challenged Tantlinger’s qualifications, the reliability of his methodologies, and the relevance of his opinions, seeking to exclude his testimony.
Accounting Expert Witness
David R. Tantlinger, Jr. has been a CPA for 39 years and is “experienced in performing accounting services, including forensic accounting services and the computation of damages to commercial and other enterprises.”
He has experience in accounting, taxation, finance and business management with a variety of industries.
Polypack argued that Nestlé failed to adequately define Tantlinger’s specific field of expertise. They claimed this lack of clarity made it impossible to properly assess his qualifications, suggesting Nestlé was trying to pass off company information as expert opinion.
Nestlé asserted that they clearly identified Tantlinger as an expert on damages. They emphasized his long-standing experience as a CPA and his specific experience in forensic accounting and damages calculations. They also pointed out that Polypack had the opportunity to question Tantlinger’s qualifications during his deposition.
The Court found Tantlinger qualified, noting his 39 years as a CPA and experience in forensic accounting and damages computation. The Court also noted that Polypack had opportunity to question the expert at deposition, and failed to do so.
Reliability
Polypack’s Objection
Polypack attacked the reliability of Tantlinger’s methodologies. They alleged he:
Failed to identify or apply established methodologies for calculating lost profits.
Did not conduct independent research or analysis.
Ignored other potential causation factors that could have contributed to Nestlé’s losses.
Nestlé’s Opposition:
Providing detailed explanations of his calculations, demonstrating that they were not arbitrary.
Stating that damages experts are allowed to rely on information provided by the client.
Arguing that questions about other potential causes of losses go to the weight of the evidence, not its admissibility.
Court Observation:
The Court rejected Polypack’s arguments, emphasizing that Tantlinger explained his calculations and that a damages expert can rely on client-provided data. The Court stated that questioning the causation factors goes to the weight of the evidence, not its admissibility.
Relevancy:
Polypack argued that many of Tantlinger’s calculations were simple mathematical operations that required no specialized expertise. They contended that his testimony would not “assist the trier of fact” because it was within the understanding of a layperson.
Nestlé acknowledged that some calculations were mathematical but emphasized that Tantlinger’s work involved extensive data analysis, document review, and the application of accounting principles. They argued that this level of analysis went beyond the capabilities of a layperson and would assist the jury.
Tantlinger calculated Nestlé’s total damages—including lost profits and plow-down costs resulting from production delays allegedly caused by the equipment, which are clearly beyond simple arithmetic. While acknowledging that simple math is not typically considered expert testimony, the Court found that Tantlinger’s analysis of extensive data and complex calculations, including lost profits, made his testimony helpful to the jury. Tantlinger compiled and analyzed a large amount of data to perform the challenged calculations.
Held
The Court denied the Plaintiff Polypack, Inc.’s motion to exclude Nestlé USA, Inc.’s expert witness David R. Tantlinger, Jr.
Key Takeaway:
This case serves as a valuable example of the challenges involved in admitting expert testimony. The Court’s meticulous application of the Daubert standard and Rule 702 highlights the importance of thorough preparation and clear articulation of expert opinions. This case also shows the importance of proper deposition preparation, and how those depositions can be used in motions to exclude expert witnesses.
The Plaintiff, a synagogue and broadcasting station, filed an insurance claim with Defendant Philadelphia Indemnity Insurance Company for damage to their custom slate roof caused by a windstorm. They hired Peter Ridulfo of Claims Pro Public Adjusters to assist with the claim. Ridulfo’s compensation was a contingent fee, tied to the amount recovered in the insurance claim, including any damages won through litigation.
The Plaintiff designated Ridulfo as a non-retained expert, intending for him to testify about the damages, the Defendant’s alleged unreasonable actions, industry standards, and his opinions on the Defendant’s duty and alleged breaches.
The Defendant challenged Ridulfo’s expert testimony, arguing that his contingent fee arrangement created a direct financial interest in the case’s outcome, rendering his opinions unreliable.
Insurance Expert Witness
Peter Ridulfo is a public adjuster with specialized knowledge of claims handling practices and standards in the industry, as well as insurance and construction regulations related to repairs.
The Plaintiff argued Ridulfo was testifying based on his observations as a public adjuster and that his expert testimony was merely to explain his actions. They claimed he was not a retained expert and was not being compensated solely for his opinion.
Analysis
Financial Stake
The Court acknowledged Ridulfo’s contingent fee agreement, which explicitly tied his compensation to the litigation’s outcome.
State Law & Contingent Fees
Applying Colorado law, the Court noted the “settled principle” against contingent fees for expert witnesses, emphasizing the need for impartiality.
Rule 403 Balancing Test
The Court adopted a Rule 403 balancing test to weigh the probative value of Ridulfo’s testimony against the potential for unfair prejudice.
Prejudice vs. Probative Value
The Court concluded that Ridulfo’s financial interest created a significant danger of unfair prejudice, outweighing the probative value of his expert opinions.
Cumulative Testimony
The Court noted that the Plaintiff had disclosed three other retained experts who could provide similar testimony, minimizing the prejudice of excluding Ridulfo’s expert opinions.
Fact Witness Testimony
The Court allowed Ridulfo to testify as a fact witness, enabling him to describe his actions and observations during the claims process.
Gatekeeping Function:
The Court emphasized that excluding Ridulfo’s expert testimony was not a sanction but an exercise of its gatekeeping function to protect the judicial process’s integrity.
Held
The Court granted the Defendant’s motion to exclude the testimony of Peter Ridulfo.
Key Takeaway:
This case underscores the importance of expert witness impartiality and the potential conflicts arising from contingent fee arrangements. Courts will scrutinize expert testimony where a financial interest exists, balancing probative value against the risk of unfair prejudice. This decision serves as a reminder of the Court’s gatekeeping role in maintaining the integrity of the judicial process.
Case Details:
Case Caption:
Simchat Torah Beit Midrash V. Philadelphia Indemnity Insurance Company
Docket Number:
1:23cv594
Court:
United States District Court for the District of Colorado
In early 2015, Plaintiffs, US Thrillrides, LLC (“USTR”) and Polercoaster, LLC began discussions with Defendant, Intamin Amusement Rides Int. Corp. Est. about partnering to build Polercoasters for Plaintiffs’ customers. The “Polercoaster” is “a roller coaster that is supported or suspended from a vertical tower instead of moving along a horizontal track.”
This case arises from a project to build a roller coaster at the Dubai Hills Mall. The developer of the Dubai Project, Emaar Entertainment LLC, originally entered into a Letter of Acceptance (“LOA”) agreement with Plaintiff US Thrillrides LLC (“USTR”) relating to the Dubai Project. However, Emaar ultimately terminated that agreement and contracted with Defendant to build a different roller coaster.
Basically, Plaintiffs filed claim for breach of the Confidentiality Non-Disclosure Agreement (“CNDA”) insofar as it is based on unauthorized use of Plaintiffs’ copyrights by Defendant and Plaintiff Polercoaster LLC’s (“Polercoaster”) copyright infringement claim.
Defendant filed a motion to exclude the testimony of Plaintiffs’ damages expert, Eric Lee while Plaintiff filed a motion to exclude the testimony of Defendant’s expert, Dr. Keith Ugone.
Accounting Expert Witness
Eric Lee is a financial and fraud expert with over 20 years of experience. He is a Certified Fraud Examiner (CFE) and Certified Insolvency and Restructuring Advisor (CIRA) and has a bachelor of science degree in accounting from Arizona State University.
Also, Lee has spent the last 15+ years in litigation, forensic and bankruptcy consulting, including the quantification of complex financial damages, lost profits, class action litigation, fraud investigations, reconstruction of financial records, corporate internal investigations, funds tracing, and other financial analyses.
Dr. Keith R. Ugone has provided economic and damages consulting services in antitrust cases, breach of contract cases, business interruption cases, class action certification matters, employment / loss of earnings cases, intellectual property cases, lender liability cases, professional negligence cases, and securities-related cases, among others.
Moreover, he specializes in the application of economic principles to complex business disputes and generally is retained in cases requiring economic analyses and/or damages-related analyses.
Plaintiffs’ claims are based on the breach of the CNDA due to unauthorized use of copyrights and copyright infringement. Lee’s expert opinions relate to actual damages, which are recoverable for both causes of action.
As is typical with damages expert opinions, Lee assumed that Plaintiffs will prevail on their substantive claims and that Plaintiffs are entitled to an award of actual damages. With those assumptions in place, Lee calculated the amount of damages that he opined would be appropriate.
Basically, Lee calculated two types of damages: (1) lost profits from consulting fees and royalty fees that Plaintiffs would have earned had the LOA not been terminated and their participation in the Dubai Project been completed; and (2) a reasonable royalty for the misappropriation of Plaintiffs’ intellectual property.
Lost Profits
Plaintiffs have not and cannot prove that Defendant caused the termination of the LOA or the end of Plaintiffs’ involvement in the Dubai Project. Multiple representatives involved in the decision to terminate Emaar’s relationship with Plaintiffs made clear that they would have chosen to have no roller coaster at the Dubai Hills Mall before they would have continued their relationship with Plaintiffs.
Therefore, the Court held that Lee’s opinions as to the amount of lost profits—i.e., the unpaid consulting fees and royalty contemplated under the LOA—will be excluded because Plaintiffs are not entitled to an award of such damages.
Reasonable Royalty
Lee’s opinions involve the calculation of a reasonable royalty for all of the intellectual property, confidential information, and trade secrets that Plaintiffs alleged were misappropriated or infringed in this case combined.
However, Lee did not break down the analysis by type of intellectual property or information. As relevant here, Lee’s opinions did not allocate a reasonable royalty to the use of Plaintiffs’ copyrights, specifically.
Without any basis to parse the damages allocated to copyright infringement—as opposed to patents, trade secrets, or confidential information which are no longer at issue—Lee’s opinions would only serve to confuse the jury.
The Court held that Lee’s opinions regarding the reasonable royalty, which do not allocate a royalty based on Plaintiffs’ copyrights specifically, must be excluded.
Keith Ugone
Plaintiffs sought to exclude the expert testimony of Defendant’s expert, Dr. Keith Ugone. As indicated by Defendant, Ugone is purely a rebuttal expert, offering a critique of Lee’s damages opinions. Because Lee’s opinions are being excluded, the Court held that Ugone’s opinions are no longer relevant and will also be excluded.
Held
The Court granted Defendant’s motion to exclude the testimony of Eric Lee.
2. The Court granted Plaintiffs’ motion to exclude Keith Ugone’s Testimony.
Key Takeaway:
To begin with, an expert’s offered opinion and the facts of the case must be an appropriate fit. There is no fit where a large analytical leap must be made between the facts and the opinion.
The Court excluded Lee’s opinions regarding the reasonable royalty because there is simply no “fit” between the facts remaining at issue in this case and the opinions rendered.
Please refer to the blog previously published about this case:
Plaintiffs, Angelique L. Lingard and Sudarien D. Smith brought this proposed consumer class action on behalf of themselves and other military servicemembers who are similarly situated against Defendants Holiday Inn Club Vacations, Inc. f/k/a Orange Lake Country Club, Inc. (“HICV”) for alleged violations of the Military Lending Act.
Plaintiffs and the proposed class members purchased timeshare interests from Defendants. Defendants are in the business of selling timeshare plans to consumers throughout the United States. These plans give their owners’ points, which allow them to stay at Holiday Inn Club Vacation Resorts throughout the United States, stay at out-of-network resorts around the world, and buy airline tickets, cruises, rental cars, and other vacation services. Plaintiffs alleged that Defendants’ timeshare contracts violate the MLA. Specifically, Plaintiffs alleged that their and proposed class members’ contracts contain mandatory arbitration, class action waiver, and jury trial waiver provisions in violation of the Act. For these alleged violations, Plaintiffs, on behalf of themselves and the class, sought an order declaring the contracts void from inception and awarding actual damages.
MLA Class: All persons who have entered into Timeshare Purchase Agreements to purchase one or more timeshare interests in the Orange Lake Revocable Trust, in substantially the same form as Exhibit C, after February 24, 2018[,] and who were identified as an active duty servicemember or a dependent within a [Department of Defense (DoD)] Man[p]ower database on the contract date. Default Subclass: All members of the MLA Class whose accounts are or were delinquent as evidenced by [Holiday Inn Club Vacations (HICV)] imposing a “use restriction” on their timeshare interest for nonpayment.
Defendants relied on the report of its expert, Paul Habibi, in its response in opposition to Plaintiffs’ motion for class certification. In rebuttal to Defendants’ expert, Plaintiffs disclosed Dr. Christopher Young and sought to rely upon his report to refute Habibi’s report. The parties sought to exclude each other’s proposed experts.
Economics Expert Witness
Christopher Young, Ph.D., MBA, MAFF, CVA is a professor of business ethics in the Department of Management and Global Business and a research fellow at Rutgers’ Institute for Ethical Leadership. His research focus is in the area of forensic economics, legal and business ethics. He holds a Ph.D. and M.B.A. in global political economy, finance, and accounting from Rutgers University.
Young is a nationally recognized testifying expert and writer in the field of economics, finance and business ethics. He has testified in state and federal courts, with respect to economics, financial policy, and business ethics matters. He has been invited to speak at many government and industry trade organizations. In addition to his academic career, Young has more than twenty-five years of experience in corporate finance, strategy, business ethics, and economic analysis. Outside of the University, he manages various research and consulting projects through his company, Red Maple Economics.
Paul Habibi is the owner of a real estate expert services firm. He is also a senior continuing lecturer at the University of California Los Angeles Schools of Management and Law, where he teaches in the areas of real estate, finance, and accounting. He holds a Master of Business Administration and is a licensed realtor, broker, and certified public accountant. Habibi teaches a course on timeshares for the MBA program at UCLA. He also teaches a course on business skills for lawyers, which covers business valuations and economic damages.
A full Daubert analysis is only required at the class certification stage “when an expert’s report or testimony is critical to class certification.”
The Court held that Young’s report is not critical to the its determination of whether to certify the proposed class because Plaintiffs have not heavily relied upon it for class certification. Indeed, Plaintiffs only refer to Young’s report in one sentence related to the manageability requirement for class certification under Federal Rule of Civil Procedure 23(b)(3)(D).
Plaintiffs sought to rely upon Young’s report to rebut Defendants’ expert’s opinion on the issue of class certification. Defendants have moved to exclude Young’s report on two grounds. Defendants contended that Young’s report was untimely disclosed and lacked reliability under Daubert.
Late Disclosure
The case management and scheduling order expressly stated that Plaintiffs’ deadline for disclosing class action expert reports was March 26, 2024. According to Defendants, Plaintiffs did not identify any expert or serve any expert report on that date. Instead, Defendants asserted that Plaintiffs disclosed Young’s identity and report on May 28, 2024, the day that class discovery closed.
The crux of Young’s opinion is that a common methodology can be used to estimate the offset owed to Holiday Inn from the proposed class members who used their timeshare points.
Although Plaintiffs recited the substantially justified or harmless standard under Rule 37, the Court held that they did not make any argument in support of their position. Rather, Plaintiffs explained that Young’s expert report was timely provided as a rebuttal expert report. The Court has rejected that argument. Plaintiffs have, therefore, failed to meet their burden of showing that their late disclosure was substantially justified or harmless.
Defendants maintained that they were prejudiced because Plaintiffs disclosed Young on the day class discovery closed. Although Defendants deposed Young after the Court granted an extension to the class discovery deadline solely for this to occur, Defendants asserted there is still unfair prejudice because many topics could not be fully explored at the deposition.
Given the prejudice caused by the untimely disclosure, the inability to cure the prejudice at the deposition, and the fact that the trial is only months away, the Court decided that Young’s opinion will be excluded.
Reliability
The Court held that Young’s report is full of limitations because he has not tested the theories he asks the Court to accept. For example, he opines that the market approach methodology “can be used” to estimate the offset due to Holiday Inn.
According to Young, this approach entails evaluating the following market observations to determine the value of the Holiday Inn points: (1) the purchase of points by the issuer, (2) the purchase of points in order to complete a transaction, (3) the sale of points in secondary markets, and (4) the redemption of points for items such as holiday stays, cruises, and car rentals, versus the cost of purchasing them. Young did not analyze these observations to make any calculations because he was not provided with this data, and he speculates as to whether Holiday Inn maintains this data.
In his report, Young offered only methods unapplied to this case that might determine the value of potential class members’ Holiday Inn points. According to the Court, this unapplied and speculative methodology did not support that a reliable class-wide damages methodology existed.
Paul Habibi
Defendants heavily relied on Habibi’s report to oppose Plaintiff’s motion for class certification. Specifically, they referred to the report to challenge Plaintiffs’ assertion that the issues in the proposed class action that are subject to generalized proof predominate over the damages issue subject to individualized proof. Plaintiffs challenged the admissibility of Habibi’s report under Daubert.
Habibi provided three opinions based on his training and experience: (1) Plaintiffs and proposed class members acquired unique and variable timeshare interests in different structures with different use rights, financing terms, and financing disclosures before and during the Proposed Class Period; (2) any negative impact on Plaintiffs’ and proposed class members’ credit scores, ability to obtain financing, and professional careers in the military cannot be reliably assessed using a common approach across the entire class; and (3) the remedies sought by Plaintiffs would require an individualized analysis of each proposed class member’s respective purchase, interest, and use history.
Qualifications
Plaintiffs asserted that Habibi is not qualified to render an opinion in this matter because his curriculum vitae does not refer to expertise in timeshares or economics or valuing non-traditional property interests such as timeshare vacation points.
However, the Court disagreed. Habibi’s extensive educational background and experience qualify him to provide expert testimony in this matter.
Relevance and Helpfulness
Plaintiffs maintained that Habibi’s first opinion is irrelevant and unhelpful because Plaintiffs’ proposed class definition is now limited to servicemembers who purchased one type of timeshare interest, an interest in the Orange Lake Revocable Trust. Initially, in the operative complaint, Plaintiffs’ proposed class definition was not limited to one type of timeshare interest and sought to include “all covered borrowers who financed a timeshare from Holiday Inn.”
Plaintiffs have the burden of showing that rescission is feasible and equitable on a class-wide basis based on the facts of the case.
According to Habibi, Plaintiffs have offered no way to determine, on a class-wide basis, the type of timeshare interest purchased by each proposed class member and the use rights of each proposed class member.
The Court held that Habibi’s first opinion is relevant to the predominance class certification analysis because the parties dispute whether actual damages can be easily calculated for all class members.
Plaintiffs contended that Habibi’s second opinion is also irrelevant and unhelpful because Plaintiffs did not seek damages for the harms described in the opinion.
The Court held that Habibi’s second opinion is relevant to the predominance class certification analysis because Defendants challenge whether determining standing for each proposed class member will predominate over issues subject to generalized proof.
As for Habibi’s third opinion, Plaintiffs maintained that it is irrelevant and unhelpful because Defendants failed to plead set-off as an affirmative defense. The Court found this argument unpersuasive because Habibi opined concerning Plaintiffs’ ability to establish a class-wide damages methodology, which they bore the burden of proving during the class certification stage and at trial.
The Court held that Habibi’s third opinion is relevant to the Court’s predominance class certification analysis since the parties dispute whether actual damages can be easily calculated for all class members.
Reliability
Plaintiffs argued that Habibi should have reviewed the third-party contracts that Holiday Inn had with other companies.
According to Plaintiffs, such a review would help determine a dollar value of points redeemed by class members for services provided by these third parties, which would help calculate the potential setoff for class members.
The Court found that Habibi analyzed the timeshare points usage history data of 300 proposed class members. Based on his analysis, Habibi determined the following: (1) 39% of the proposed class members redeemed all of their timeshare points to stay at another Holiday Inn resort, and (2) for the proposed class members who redeemed their points for external stays or outside services, the average class member used 26.9% of their total timeshare points towards outside services.
The Court held that Habibi’s analysis supported his conclusion that proposed class members have redeemed their points in various ways at different times such that there is no common value ascribed to points universally that could be used as a basis to ascribe a specific dollar value to the points on a class-wide basis.
Further, as mentioned above, Plaintiffs bore the burden of establishing that calculating damages on a class-wide basis predominates over issues subject to individualized proof. Defendants only offered Habibi’s testimony to rebut Plaintiffs’ assertion they have met their burden on this issue. Habibi’s nonscientific opinion about whether there is a common methodology that can be used to determine the value of the points redeemed by the proposed class members is reliable based on his training and experience, and the Court has already found this testimony to be relevant and helpful to the Court’s predominance class certification analysis.
Held
1. The Court denied Plaintiffs’ motion in limine to exclude the report and testimony of Paul Habibi.
2. The Court granted Defendants’ motion to exclude the opinions of Plaintiffs’ proposed expert Christopher Young.
3. The Court denied Plaintiffs’ motion to certify class. On or before March 14, 2025, Plaintiffs shall file a third amended complaint which omits class action allegations.
Key Takeaways:
Young’s report is full of limitations because he has not tested the theories he asked the Court to accept.
So long as the expert is minimally qualified, objections to the level of the expert’s expertise go to credibility and weight, not admissibility.
The fact that some of their contracts with their third-party vendors may provide some mechanism for reimbursement in dollars did not render unreliable Habibi’s opinion that there is no common approach that can be used to value the redeemed points of the proposed class members.
Case Details:
Case Caption:
Lingard Et Al V. Holiday Inn Club Vacations, Inc. Et Al
The present case involves an insurance coverage dispute between an East Texas church, Plaintiff Christian Heritage School c/o Youth With a Mission, and its insurance company, Central Mutual Insurance Company. Between May 1, 2020, to May 1, 2022, Defendant insured Plaintiff’s property, which consisted of a twenty-one building campus in Tyler, Texas. The dispute arises from alleged storm-related damage with a date of loss on April 5, 2022.
Pursuant to Federal Rule of Civil Procedure 26(a)(2), Plaintiff retained insurance adjuster expert witness, Duane Smith. Smith was supposed to testify about his inspection, investigation, and observations of the property damaged by a hail and wind event on April 5, 2022. His designation also indicated that he would testify to the reasonable costs to repair and/or replace the property that was damaged by the hail and wind event reported to have occurred on April 5, 2022.
Smith’s report included a discussion of his qualifications and experience, the materials he reviewed, his findings, and relevant weather information. Based on this information, he included line items for the property with the estimated costs to repair and/or replace the property.
Defendant moved to exclude Smith from offering opinion testimony on the timing and cause of the claimed damages to the campus, the necessity of replacing roofs rather than repair, and the cost of Occupational Safety and Health Administration (‘OSHA’) compliance and upcharges in his estimate.
Insurance Adjuster Expert Witness
Darrell Duane Smith has been a licensed public insurance adjuster since 2016. With approximately 19 years of experience as an independent insurance adjuster, he has managed numerous commercial and residential insurance claims.
Through these experiences, Smith has adjusted hundreds of wind and hail events, water damage, and fire damage claims during his career, including both commercial and residential claims.
I. Methodology Regarding Causation and Replacement
Defendant’s Arguments
Defendant argued that Smith’s own weather data showed no hailfall at the campus and that he conducted no testing. Defendant claimed that Smith provided no weather data indicating that wind or hailfall occurred on the campus on April 5, 2022 and that he failed to consider all information to exclude other potential causes of damage to the campus, such as pre-existing damage or post date of loss damages.
Plaintiff’s Counter-Argument
Plaintiff pointed out that Smith examined storm data from May 3, 2017, to April 5, 2022, to assess other potential storms but concluded that “the distinctive size, shape, and pattern of the hail damage conclusively established the April 5, 2022 hailstorm as the cause of damage.” Plaintiff also cited to Smith’s report where he concluded this same fact and explained, based upon coloration of old hail damage (discolored, grey, or whited out), versus the characteristics of hail damage that appeared to be “fresh” and consistent in size and shape with the April 5, 2022 storm. Smith also assessed the storm created openings for the roof and water damage, which was consistent with the April 5, 2022 storm due to lack of “long-term” aging.”
Plaintiff argues that Defendant’s arguments went to the weight of Smith’s opinions, not the admissibility of them.
Causation
Smith reviewed weather information from the National Oceanic Atmospheric Administration (“NOAA”) in order to determine which storms, if any, other than April 5, 2022 storm, affected the property. His search covered the period from May 3, 2017, to April 5, 2022, which he provided rules out any other possible date of loss.
Moreover, Smith testified that when he inspected the property in 2023, he was able to distinguish between old and new damage based upon the repairs that already took place and the fact that the marks seemed to be “fresh” because they were not discolored, old, grey, or turning white like might be expected with aging.
Similarly, Smith opined that water damage observed at the property did not exhibit signs of long-term aging, or indicate a long-term ongoing issue nor are there signs of historical repairs at the affected locations. He stated that he considered alternative causes of loss, including foot traffic, wear and tear, and deterioration and concluded that no evidence consistent with these causes of damage was found.
Replacement Versus Repair
As to the necessity of replacement versus repair, Smith explained how he based his conclusions on his own inspection and experience. Smith line itemed the inspection damage in his expert report. He explained how upon inspection, he observed a significant number of unsealed tabs consistent with high wind, as well as hail damage to shingles and metal roofing. He stated that, based upon the damage he observed, it wouldn’t have been feasible to try to conduct repairs because the damage to the roofs was too widespread. This is the basis of his opinion recommending replacement.
The Court found that Smith’s report and testimony explained how he determined, based upon his experience, inspection, and review of the weather data, that the April 5, 2022 storm caused the damage. This included observations regarding prior storms from the weather data, the condition of the damage upon inspection as it relates to characteristics of time and wear, and the possibility of damage from post-date storms which he found occurred not in the relevant area and were several miles away. It was held that this evidence demonstrated that Smith examined other potential causes, thereby rendering his methodology and opinions reliable for purposes of determining admissibility under Daubert and Rule 702.
The Court held that the Defendant may have identified weaknesses in Smith’s opinions, but it does not render them ipse dixit merely because Defendant disagrees with his conclusion. The credibility of Smith’s opinions remained a matter for the jury to consider.
II. OSHA Compliance
Defendant argued that Smith included Kevin Dandridge’s incomplete estimate for OSHA safety protocols and procedures in his estimate, making it unreliable. Dandridge was retained to testify about to the proper OSHA safety protocol and procedures.
The Court held that Smith’s reliance on Dandridge’s OSHA compliance costs was not atypical. The Court, in a separate order, held that Dandridge’s testimony in this regard is permissible. As Dandridge himself explained, these opinions can be reconciled. To the extent the reliance is flawed, or Dandridge’s opinions are based upon a weak foundation, then, again, that remains a matter for cross examination.
III. 20% Inflation Adjustment
Lastly, Defendant argued that Smith included a 20% blanket inflation adjustment without providing a sufficient methodology.
According to the Court, had Smith simply added a blanket 20% inflation adjustment without explanation, then such a methodology would be unreliable. However, Smith has explained his reasoning for this adjustment. As he testified to this point, “because all the major suppliers are sending out demand surge notices and informing all the contractors that due to the supply and demand, that all the materials have went up at least 20 percent, if not more.”
Smith further explained his experience with typical surge pricing due to storm demand having been involved with hurricanes.
Held
The Court denied the Defendant’s motion to strike the expert testimony of Plaintiff’s insurance adjuster expert witness, Duane Smith.
Key Takeaways:
According to Rule 703, an expert may also rely upon the opinion of another expert, as long as the other expert opinion upon which the expert bases an opinion or inference are of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject. In conclusion, Smith’s reliance on Dandridge’s OSHA compliance costs was not atypical.
Defendant may have pointed out weaknesses in Smith’s opinions, but it does not render them ipse dixit merely because Defendant disagrees with his conclusion. This is simply a matter of credibility of the expert, which the jury can properly consider.
Smith’s testimony explained how he determined, based upon his experience, inspection, and review of the weather data, that the April 5, 2022 storm caused damage to the property. This included observations regarding prior storms from the weather data, the condition of the damage upon inspection as it relates to characteristics of time and wear, and the possibility of damage from post-date storms which he found occurred not in the relevant area and were several miles away. This evidence demonstrates that Smith examined other potential causes, thereby rendering his methodology and opinions reliable.
Case Details:
Case caption:
Christian Heritage School c/o Youth With A Mission v. Central Mutual Insurance Company
Docket Number:
6:24cv45
Court:
United States District Court for the Eastern District of Texas, Tyler Division
This case involves an alleged breach of a non-disclosure agreement (the NDA) and patent infringement stemming from the management, construction, and operation of a large lagoon in St. George, Utah (the Lagoon) by Defendants, Desert Color Manager, LLC, Desert Color St. George, LLC, and Pacific Aquascape International, Inc.
Specifically, Plaintiffs Crystal Lagoons U.S. Corp. and Crystal Lagoons Technologies Inc. (collectively, “Crystal Lagoons”) alleged that, after agreeing to the terms of the NDA, the Desert Color Defendants breached the NDA by disclosing designs, plans, technical information, and other confidential information to Defendant Pacific.
Plaintiffs then alleged that all Defendants infringed on U.S. Patent No. 8,062,514 (the ‘514 Patent) due to their management and construction of the Lagoon, which allegedly employs Crystal Lagoons’ patented technology. In its most basic sense, the ‘514 Patent is a patented structure to contain a large body of water for recreational use.
The ‘514 Patent involves, among other things, the design and construction of a structure to contain a water body larger than 15,000 m³, the use of a plastic liner to cover the bottom and walls of the structure, the use of a recycling system that uses pipes with injectors that also allow the application of chemicals, the use of a water inlet line and inlet chambers through which water is extracted to feed the fresh water feeding pipe system of the structure, and the use of a system of skimmers positioned along the border of the structure.
Plaintiffs retained Christopher D. Lidstone as an expert to opine on the infringement and validity of the ‘514 Patent, and they retained Richard F. Bero as an expert to opine on the issue of damages. Defendant filed motions to exclude the opinions offered by Lidstone and Bero.
Accounting Expert Witness
Richard F. Bero is the executive vice president of The BERO Group’s Economic Damages division. He is a certified public accountant (CPA) and a certified valuation analyst (CVA). Bero received his BBA in Accounting and Finance from the University of Wisconsin-Madison.
Bero provides accounting and financial consulting services and expert testimony pertaining to economic damages and valuation issues in a wide range of litigation matters with an emphasis on commercial litigation and intellectual property matters.
Christopher D. Lidstone is principal of CDLidstone, LLC, Fort Collins Colorado. He was formerly president and founder of Lidstone and Associates and managed that firm for 29 years until July, 2015. He sold Lidstone and Associates to Wenck Associates and served as a Principal and Regional Manager for that firm until January of 2021. In his current position as owner of CDLidstone LLC he continues his water resources engineering and geological career throughout the United States and internationally. He serves as a consultant to not only the mining but environmental industry as well as several municipalities, state and federal government. He has completed geological exploration and due diligence services in the US, Canada and Mexico and has completed work in Indonesia, Australia and Papua New Guinea.
His work expertise addresses both ground water and surface water studies including water supply, water development, erosion and sedimentation, flood control, geomorphic stability, geochemistry and water quality studies.
Christopher D. Lidstone’s Expert Opinions Regarding the Absence of Non-Infringing Alternatives, Long-Felt Need, and Copying Are Inadmissible
Lidstone is a water geologist, not a recreational water structure designer
First, Defendants argued Lidstone is a water geologist, not a recreational water structure designer. As such, he cannot be considered a person of “ordinary skill in the art,” which is necessary to opine on the infringement and validity of the ‘514 Patent.
Plaintiffs responded by pointing to, among other things, Lidstone’s 42 years of experience in the field of hydrology; his degrees in Geological Sciences and Geomorphology; his work experience with the design and construction of water supply, water treatment, and storage projects for public water supplies; his experience previously serving as a technical expert in other patent cases related to groundwater storage; his experience teaching courses on the building blocks for pools, like the use of liners, flocculation, disbursement, cation exchange, water, and concrete; and more.
The Court agreed with Plaintiffs that Lidstone has specific, relevant experience related to the ‘514 Patent to qualify him as a person of ordinary skill in the art with respect to water structure design generally, and there is no requirement that Lidstone have specific design experience with recreational water structures to opine on the validity and potential infringement of the Patent. After all, the potential for recreational use of these structures is only a small part of the invention.
Lidstone lacks a factual basis for his opinion that the ‘514 Patent is a “foundational” patent
Second, Defendants argued that Lidstone lacked a factual basis for his opinion that the ‘514 Patent is a “foundational” patent.
Defendants added that Lidstone never defined what the term “foundational” means, and they emphasized the potential lack of relevance of Lidstone’s testimony regarding the nature of the ‘514 Patent.
However, the Court held that Lidstone defined “foundational” as being the original, or foundational, patent filed by an applicant directed to a particular subject matter. Indeed, Lidstone identified the ‘514 Patent family as the first family of patents filed in the United States by Crystal Lagoons related to this technology, and he acknowledged the fact that other patents issued from the same initial application.
Lidstone relied on no data or facts whatsoever to support his opinion that there are no non-infringing alternatives to the technology of the ‘514 Patent
To prove the absence of acceptable, non-infringing alternatives, the patentee may prove either that the potential alternative was not acceptable to potential customers or was not available at the time of infringement.
Plaintiffs pointed to Lidstone’s opinions on the “foundational” nature of the ‘514 Patent as the basis for this opinion.
It was unclear to the Court how this opinion independently constituted a sufficiently reliable basis for an “absence of non-infringing alternatives” opinion. The most relevant expert testimony the Court could identify potentially relating to this issue is when Lidstone testified how “the technology covered by the ‘514 Patent constituted a significant departure from the technologies for building and maintaining large bodies of water for recreational purposes available at the time” as it allowed for “the design, construction, and operation of sustainable, clear lagoons of virtually unlimited sizes.”
Critically missing from Lidstone’s report and testimony, however, are any facts or analysis suggesting how at the time of Defendants’ alleged infringement there was an absence of acceptable, non-infringing alternatives.
At best, Lidstone provides an opinion on the novelty of the invention but cabins it to the exact moment Crystal Lagoons first patented its lagoon technology in the United States (in 2007)—he did not opine on the existence of non-infringing alternatives when Defendants allegedly infringed on the Patent by designing and building the accused Lagoon (between 2019 and 2020).This did not reliably demonstrate how in 2019, at the time of the alleged infringement, there was an absence of acceptable, non-infringing alternatives. Twelve or more years of technological advancements may have altered the lagoon technology landscape significantly, and it is a crucial consideration for any expert opinion regarding whether non-infringing alternatives existed at the time of infringement. The Court held that the expert testimony is unreliable and inadmissible.
Defendants argued that Lidstone has no factual basis for his opinion that the ‘514 Patent fulfilled a “long-felt need”
Plaintiffs contended that Lidstone’s factual basis for this opinion permissibly rests on (1) his opinion that the ‘514 Patent is a foundational patent, and (2) the increase in demands for lagoons after the ‘514 Patent was issued.
Lidstone’s rebuttal expert report consisted of only two, conclusory sentences that the ‘514 Patent “fulfilled a long felt need to develop and treat large bodies of water such as lakes and ponds.”
He later testified he based his long-felt-need conclusion on the nature of the patent, the history that predated the patent, and what happened after the patent came into play.
Specifically, Lidstone indicated how, based on his understanding of the relevant pool-related technology, “prior to this patent, there were no large lagoons that had been developed, and subsequent to the patent, lagoons were built,” but he admittedly could not identify any statements or other evidence prior to 2006 indicating a long-felt need.
The Court is unpersuaded that merely pointing to some level of eventual demand for a patented product renders reliable expert testimony regarding long-felt but unresolved need. If this were the case, all patented products that happen to generate sales over the life of the patent would essentially enjoy a presumption of satisfying a long-felt need. While a rapid increase in demand for the patented product may be suggestive of long-felt need, Lidstone did not analyze the rate of increase of demand for lagoons. He only analyzed and described Crystal Lagoons’ current success in the lagoon industry.
Defendants argued that Lidstone lacked sufficient facts and data supporting his opinion that the ‘514 Patent has been commercially successful
Defendants admitted Lidstone takes about a page of his report discussing various indicators of Plaintiffs’ commercial success, but they insisted Lidstone never analyzed data to reach his opinion that the commercial success resulted from the ‘514 Patent.
The Court held that Lidstone’s opinions on this subject are reliable and relevant as they adequately demonstrate and describe how the ‘514 Patent is advantageous to Crystal Lagoons’ commercial success. Lidstone described various indicators of Crystal Lagoons’ ongoing commercial success in his rebuttal report, and he linked the success to the ‘514 Patent by relying on his previous opinion that the technology of the ‘514 Patent provides the foundation for Crystal Lagoons’ technology to create large bodies of water for swimming and recreational use.
As discussed above, the Court held that his opinion on this subject is also reliable and admissible. Moreover, a correct understanding of Crystal Lagoons’ business model, which Lidstone understood, also supported his commercial success opinion. Crystal Lagoons generates revenue by issuing a collective license of all its intellectual property—which necessarily includes the’514 Patent—to lagoon builders for the design, construction, and operation of its lagoon technology. Notably, Crystal Lagoons did not design, build, and operate artificial water lagoons, nor did it license its Patents and other intellectual property on a patent-by-patent basis; instead, it licenses all of its technology only when it has ongoing involvement in a project such as providing (and getting paid for) its ongoing systems fees services.
Defendants argued that Lidstone failed to link any “industry praise” to the actual inventions of the ‘514 Patent
Lidstone’s explained how “based on the invention of the technology of the ‘514 Patent,” Fischmann (the inventor of the ‘514 Patent), has been honored many times with prestigious international awards, including Entrepreneur of the Year, Innovator of the Year, Businessman of the Year, the Innovation Stevie Award, the Real Innovator Award, the Green Apple Award, and two Guinness World Record Awards related to lagoons built and operated using Crystal Lagoons’ technology.
He also explained how hundreds of lagoon projects around the world currently use Crystal Lagoons’ technology.
As explained above, these awards presented to Fischmann for his lagoon-related inventions necessarily relate, at least in part, to the ‘514 Patent because this Patent is included in each sale of Crystal Lagoons’ collective license, and the technology likely forms a part of each resulting lagoon. Lidstone’s analysis and opinions on this subject are reliable and admissible.
Defendants argued that Lidstone failed to provide any factual basis to support his conclusion that Defendants “copied” the ‘514 Patent
Plaintiffs did not direct the Court to any reliable support for Lidstone’s opinions regarding copying of ‘514 Patent technology; they only argued that Lidstone’s opinions regarding Defendants’ infringement were sufficient to support his copying opinion. But precedent forecloses this argument. A review of Lidstone’s expert reports and deposition testimony reveals he similarly conflated the terms “copying” and “infringement.” Tellingly, the only explicit support for his copying opinion is his analysis of another lagoon’s infringement of the ‘514 Patent in a related case.
And when pressed about the basis for his copying opinion, Lidstone testified how “[he] look[ed] at similarities in designs and so forth,” but he admitted, “[w]hat Pacific Aquascape did to get there, I don’t know.” A reliable copying opinion would have focused on what Defendants “did to get there,” i.e., their efforts to replicate a specific product, not on the mere similarities between the accused device and the patent claims. The Court therefore concluded that Lidstone’s opinions and testimony on this subject are unreliable and inadmissible.
Richard F. Bero’s Expert Testimony Regarding Infringement Damages is Unreliable and Inadmissible
Defendants dedicated a few sentences of their Motion to argue Bero’s opinions regarding commercial success, breach of contract damages, and unjust enrichment damages are unreliable. But the Court found that this testimony was sufficiently supported and reliable to be admissible.
Patent infringement damages are customarily computed by calculating lost profits or a reasonable royalty, and Defendants challenged the admissibility of Bero’s testimony with respect to each calculation.
The Federal Circuit is clear that “apportionment is an important component of damages law generally, and . . . it is necessary in both reasonable royalty and lost profits analysis.”
Under the entire market value rule—which has been described as a “narrow exception” to the apportionment requirement and potentially applies regardless of whether the patentee relies on a reasonable royalty or lost profits calculation—the patentee may rely on the entire market value of the accused product if the patentee demonstrates that “the feature patented constitutes the basis for customer demand.”
Here, Plaintiffs do not sell products. Instead, as explained above, Crystal Lagoons primarily generates revenue by issuing a collective license of all its intellectual property to lagoon developers, which includes the ‘514 Patent, for the design, construction, and operation of its lagoon technology.
The Court held that Bero “never conducted any market studies or consumer surveys to ascertain whether the demand for [the collective license] is driven by the [‘514 Patent]” in dispute. Ultimately missing from Bero’s opinions are any sufficiently reliable facts or data suggesting the ‘514 Patent is what motivates consumers to purchase the Crystal Lagoons’ portfolio of property.
Movant’s Ignorance of the Law is Insufficient to Demonstrate Excusable Neglect
Plaintiffs made an oral motion seeking to allow Bero additional time to submit a supplemental expert opinion, which would address some of the deficiencies with his expert report. Federal courts are clear that a movant’s ignorance of the law is insufficient to demonstrate excusable neglect; accordingly, Plaintiffs have not satisfied their burden under Rules 6(b)(1)(B) and 16(b)(4) to modify the already expired expert discovery deadline.
Held
The Court granted in part both motions to exclude Plaintiffs’ experts Christopher D. Lidstone and Richard F. Bero.
Key Takeaways:
Even though Lidstone may lack experience with designing water structures primarily used for recreation, Lidstone’s experience with designing other water structures qualifies him to opine on key issues relevant to the structure-related claims of the ‘514 Patent.
Evidence of long-felt need is closely related to the failure of others, though they are distinct considerations. This evidence is particularly probative of obviousness when it demonstrates both that a demand existed for the patented invention, and that others tried but failed to satisfy that demand.
When the patented invention is a component of a commercially successful machine or process, the patentee need only “come forward with evidence sufficient to constitute a prima facie case of the requisite nexus,” and show “a legally sufficient relationship between that which is patented and that which is sold.” In this case, the ‘514 Patent necessarily forms a part of each sale of the collective license, and likely plays a part in the development of each resulting lagoon.
Plaintiffs and Bero rely solely on the “foundational” and “core” nature of the ‘514 Patent, the fact that the ‘514 Patent is included in every purchase of Crystal Lagoons’ collective licenses, and the lack of viable lagoons in the marketplace to make an impermissible inference that the Patent drives consumer demand for all of Crystal Lagoons’ intellectual property. None of these are adequate bases to justify Bero’s reliance on the entire market value rule.
Case Details:
Case Caption:
Crystal Lagoons Us Corp Et Al V. Desert Color Manager Et Al
Plaintiff Ram Krishana Inc., a Louisiana business owned by Mukesh and Kailash Zaveri, operated as Motel 6 (“Hotel Property”) at 2022 Ruth Street, Sulphur, Louisiana. ANK Holdings, LLC, a Louisiana limited liability company with the same Mukesh and Kailash Zaveri as its only members, owned a restaurant (“Restaurant Property”) at an adjoining address.
Defendant Mt. Hawley Insurance Company issued Ram Krishana an insurance policy covering both the Hotel and Restaurant Properties for the period from June 27, 2020, to June 27, 2021.
This case involves an insurance claim relating to alleged damages to Plaintiff’s hotel complex resulting from Hurricanes Laura and Delta, which occurred in August and October 2020, respectively.
On July 12, 2024, Mt. Hawley filed a Daubertmotion to exclude Plaintiff’s insurance adjuster expert witness, Jeffrey Major, from testifying on causation and amount of loss.
Insurance Adjuster Expert Witness
Jeffrey S. Major is a licensed public insurance adjuster in over 40 states and territories including being a licensed public adjuster and registered appraiser in the State of Louisiana and a licensed public adjuster in New York.
He has been adjusting, substantiating and estimating property damage claims to repair and replace property for Reserve, Actual Cash Value (ACV), and Replacement Cost Value (RCV) purposes for over 30 years.
He has estimated using the property damage estimating program Xactimate for over 18 years.
In his expert report, Major provided his estimate of damage to the Properties. He opined that Mt. Hawley improperly estimated damages, undervalued the claim, and failed to make proper actual cash value payments in a timely manner. Major estimated the actual cash value of the loss is $1,342,605.08. His expert report relied in part on estimates calculated in a software program called Xactimate.
Xactimate supplies default prices, but users can, as Major did here, input prices themselves.
Mt. Hawley’s Arguments
Mt. Hawley did not challenge Major’s qualifications. The Court reviewed Major’s training and experience and concluded that Major was qualified to testify about replacement cost valuation and insurance adjustment considering he has adjusted numerous insurance claims arising from hurricanes in the Louisiana area.
Rather, Mt. Hawley argued that Major’s opinions were unsupported and unreliable based on the price inputs underlying his cost estimates using Xactimate. Mt. Hawley did not argue that Xactimate is an unreliable tool for cost estimation in the insurance industry and Ram Krishana cited several cases approving the use of this common software program. Instead, Mt. Hawley claimed that Major’s opinions are unreliable because the cost information that he purportedly entered into the Xactimate tool for some prices was based only on his general experience and no documentation or objective substantiation for those estimates was provided.
Major had gathered prices from “actual builders who did the work in this event,” “invoices from contractors and their estimates,” invoices he reviewed, and interviews with contractors, as well as work he did as an adjuster on similar claims during the relevant period.
Numerous courts have considered Daubert challenges to experts who used Xactimate, but deviated from the default prices or otherwise purportedly erred, and have found that such challenges go to the weight to give an expert’s opinions, not the admissibility of their testimony.
In that case, which involved a jury trial, the Court excluded the testimony of an expert who used Xactimate. Like Major, that expert input at least some of his own costs. However, the expert in La Gorce could not describe the methodology he relied on for calculating input values, did not explain an intelligible process for identifying which damages he deemed to preexist the hurricane nor even identify the damages he excluded on this basis, and could not provide any measurements associated with his estimated costs. The Court also questioned how the expert determined the cost of repair for such a large property over just two days.
In the present case, however, Major identified the particular prices that he independently input into Xactimate. He explained that the costs came from builders who did work in the storm that damaged Plaintiff’s property and his own experience in adjusting similar claims. While Major apparently did not have any documentation to support his estimates, deficiencies in his methodology for gathering prices did not reach the level of the methodological deficiencies in La Gorce, in which the expert could not explain how he gathered data or formed his damage estimations. Also, the expert testimony in La Gorce would have been presented to a jury rather than to the Court in a bench trial, as here.
Analysis
Hawley may well have strong cross-examination fodder based on the fact that Major has not produced records or written substantiation of the estimates that he included that were based on his expertise and experience. Such critiques will be closely scrutinized by the Court in determining the weight, if any, to afford Major’s opinions.
Given that this case is set to be tried to the bench, unless the disputed evidence is wholly irrelevant or so speculative as to have no probative value, it is appropriate for the Court to take in the evidence freely and separate helpful conclusions from ones that are not grounded in reliable methodology.
Held
The Court denied Mt. Hawley’s Daubert motion to exclude the testimony of Plaintiff’s insurance adjuster expert witness, Jeffrey Major.
Key Takeaway:
The Court held that Major sufficiently explained his methodology and established its reliability, despite the apparent lack of documentation to support his estimates. Major identified the particular prices that he independently input into Xactimate and explained that the costs came from builders who did work in the storm that damaged Plaintiff’s property and his own experience in adjusting similar claims.
Major did not produce records or written substantiation of the estimates that he included but the Court still refused to entirely exclude Major’s testimony.
Case Details:
Case caption:
Ram Krishana Inc. v. Mt. Hawley Ins. Co.
Docket Number:
1:22cv3803
Court:
United States District Court for the Southern District of New York
