AI Case Brief
Generate an AI-powered case brief with:
Estimated cost: $0.001 - $0.003 per brief
Full Opinion
ORDER ON MOTION TO EXCLUDE EXPERT TESTIMONY
In anticipation of trial, Berry Plastics Corporation and Covalence Specialty Coatings, LLC move to exclude the expert testimony of Packgen’s damages expert on multiple grounds, including lack of qualifications, improper methodology, and lack of facts or data supporting his opinions. The Court denies the motion because Packgen has demonstrated that each of the arguments for exclusion go to the weight of the expert’s testimony and should be tested by the adversary process.
I. STATEMENT OF FACTS
A. Procedural History
Packgen filed a five-count complaint against Berry Plastics Corporation and Covalence Specialty Coatings, LLC (Berry)
On February 27, 2014, and continuing on March 3, 2014, the Court held a testimonial hearing regarding Berry’s motion. Minute Entry (ECF No. 57); Minute Entry (ECF No. 59); Tr. of Proceedings, Vol. I (ECF No. 62) (Tr. Vol. I); Tr. of Proceedings, Vol. II (ECF No. 63) (Tr. Vol. II). Berry filed its post-hearing memorandum of law in support of its motion to exclude on April 21, 2014. Defs.’ Mem. of Law in Supp. of its Previously Filed Mot. [Doc. 5JJ to Exclude Pl. ’s Expert, Mark G. Filler (ECF No. 64) (Defs.’ Mem.). Pack-gen responded on May 28, 2014. PL’s Mem. of Laiv in Opp’n to Defs. ’ Mot. to Exclude Pl. ’s Expert, Mark G. Filler (ECF No. 67) (PL’s Opp’n). Berry replied on June 13, 2014. Defs.’ Reply in Support of Mot. to Exclude Mark G. Filler (ECF No. 70) (Defs.’Reply).
B. Factual Background
Packgen manufactures intermediate bulk containers certified for .the transportation and storage of catalyst, a hazardous chemical agent employed in refining crude oil into petroleum products. Pl. ’s Opp’n at 7. In 2007, Packgen redesigned its Cougar catalyst container and began making it out of a laminated fabric. Id. Berry agreed to supply this laminated fabric and represented that it could meet Packgen’s quality standards. Id. Packgen and CRI/Criterion (CRI), a catalyst manufacturer and long-standing Packgen customer, worked together to modify the new Cougar to meet CRI’s specialized requirements. Id. After a lengthy development process, CRI agreed that the customized Cougars met its needs and began purchasing large quantities of Cougars. Id.
Packgen maintains that, six months later, Cougars sold to CRI ruptured when they were loaded with Catalyst. Id. It states that this created an unsafe and dangerous situation at the many locations around the world where CRI had delivered catalyst in Packgen’s containers. Id. CRI immediately cancelled all pending orders for the customized Cougars and terminated its business relationship with Packgen. Id. Packgen contends that because of the widespread negative fallout from the product failure, Packgen lost sales to CRI and 37 North American refineries. Id. Pack-gen sued Berry, claiming that the Defendant supplied it with laminated fabric of poor quality, that the Defendant failed to properly bond the aluminum foil to this fabric, and that the fabric was unsuitable for containers designed for catalyst. Id.
C. Mr. Filler’s Proposed Testimony
Mr. Filler, Packgen’s damages expert, is a certified public accountant and certified valuation analyst who has written and lectured extensively in the area of business valuation, business interruption claims, and lost profits damages. Id. at 51-55; PL’s Opp’n at 8.
Mr. Filler’s expert designation states that he “will provide expert testimony concerning lost profits suffered by Packgen as a result of the actions of the defendants.” Expert Designation at 1-2. To calculate net profits for lost sales to CRI, Mr. Filler used a “deterministic model” — a model that does not account for future contingencies. PL’s Opp’n at 9 (citing Tr. Vol. I 50:21-25). Packgen maintains that “[t]he CRI damages model shows the annual net present value of Packgen’s lost profits for each of the ten years following the product failure.” Id. at 9. To calculate lost profits for the 37 refineries, Mr. Filler used a
II. THE PARTIES’ POSITIONS
A. Berry’s Motion
Berry argues that Mr. Filler’s opinions regarding the lost profits of Packgen are unreliable and irrelevant, and that the Court should exclude them under Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and its progeny. Defs. ’ Mem. at 9-37. It maintains that Mr. Filler’s opinions on damages for both CRI and the 37 refineries must be excluded because Mr. Filler is not an expert in statistics. Defs. ’ Mem. at 9-13. It notes that multiple regression analysis is “subject to misuse,. [and therefore] courts cannot be expected to accept at face value conclusions derived from such a model absent expert testimony concerning the validity of the model itself.”
With this backdrop, Berry contends that “despite acknowledging that he is not a statistics expert, [Mr. Filler] embedded statistical calculations in each of his lost profits opinions.” Id. at 11. It explains that Mr. Filler used a linear regression model to allocate Packgen’s overhead costs for both CRI and the 37 refineries, and points out — as further purported evidence that he is not qualified to use statistical methods — that Mr, Filler relied on one or more coefficients from regressions that were not statistically significant. Id. at 10 (quoting Tr. Vol. I 32:7-11) (“the regression model, even though it’s not statistically significant, it’s still a 29 percent improvement over the average [overhead cost] and it allowed me to break down overhead between fixed expenses and variable expenses”). Quoting its own expert, Berry insists that the use of information lacking in statistical significance “violates every statistical principle about why you’re doing the test in the first place.” Id. at 12 (quoting Tr. Vol. I 217:11-12). For all of these reasons, Berry claims that Mr. Filler made a choice “between a method for which he was qualified and one for which he is not,” and therefore insists that “any of Mr. Filler’s opinions that use statistics must be excluded.” Id. at 13.
Berry next focuses on Mr. Filler’s opinions regarding lost profits for CRI. Id. at 13-24. It contends that Mr. Filler was “wholly unable” to provide corroborating evidence at the hearing in support of the ten year timeframe for which he estimated damages. Id. at 13. In particular, it maintains the following testimony demonstrates that “ten years is merely a guess with no factual support,” id. at 15:
*97 Q. Mr. Filler, isn’t it true that you have absolutely no evidence that that six month trajectory would continue?
A. That’s true. I also have no' evidence that it would stop. I went with what was.
Id. at 14 (quoting TV. Vol. 1108:5-9).
Berry rejects Mr. Filler’s “position that ten years is an acceptable guess[,]” characterizing his reasoning that there is “no evidence that [the six month trajectory in which sales were strong] would stop” as “nonsensical.” Id. at 15. It distinguishes the “lack of evidence that the [six-month] trajectory [of existing sales] would stop” from “evidence to support his affirmative position that CRI’s six month volume of purchasing would continue for ten years,” and argues that Packgen’s burden of proof on admissibility “obligate^] [it] to demonstrate that his opinion was supported by more than conjecture.” Id. (citing Atlantic Research Marketing Systems, Inc. v. Saco Defense, Inc., 997 F.Supp. 159, 167 (D.Mass.1998)). It further argues Pack-gen has ignored evidence that CRI could have stopped its buying pattern, explaining that “between 2008 and 2005 CRI increased purchases ..., but in 2006 reduced purchases by almost 50%.... ” Id. (citing Tr. Vol. II 289:12-21). Berry submits that “Mr. Filler’s ten year projection based upon a mere six months of sales without any corroborating support is also inimical to Maine law,” referring to a case in which the Maine Law Court rejected a claim of lost profits for a single year when it was based “merely on one year’s past performance.” Id. at 16 (quoting Ecken-rode v. Heritage Mgmt. Corp., 480 A.2d 759, 766 (Me.1984) and citing Reardon v. Lovely Dev., Inc., 2004 ME 74, ¶¶ 10-12, 852 A.2d 66, 69-70). It maintains that other jurisdictions have also concluded “that lengthy, but factually unsupported, damages periods are unreliable.” Id. (citing Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin, 247 Conn. 48, 717 A.2d 724, 739 (1998) (twelve years); Sun Ins. Mktg. Network, Inc. v. AIG Life Ins. Co., 254 F.Supp.2d 1239, 1248 (M.D.Fla.2003) (ten years)).
Berry also takes issue with Mr. Filler’s forecasting methodology, arguing that he “improperly combines ... lost profits and business valuation” and referring to his approach as a “unique, untested methodology that has no basis in accounting theory or legal precedent.” Id. at 19; see also id. at 24-26. It also argues that Mr. Filler justified his ten-year term of damages as a “rule of thumb” but that “[t]he record has zero factual, legal or professional literature to support this purported rule....” Id. at 22. Berry suggests that “Mr. Filler simply opted for the longest period he has ‘seen,’ without any explanation or any facts that can be evaluated by the finder of fact.” Id. at 23. In sum of its position regarding CRI, Berry concludes that “the lack of evidence to support the ten year period, the lack of any rule of thumb and the untested method are each an independent basis to exclude Mr. Filler’s opinions.” Id. at 26.
Next, Berry focuses on Mr. Filler’s opinion regarding lost profits for the 37 other refineries, arguing that it is also inadmissible. Id. at 27-37. Berry notes that Mr. Filler used XLSim, a computer simulation program that incorporates statistical analysis, see id. at 3, to reach his conclusions on damages related to the 37 refineries. Id. at 28. Reiterating its earlier arguments about Mr. Filler’s lack of qualifications as a “statistics expert,” Berry contends that he must be barred from rendering this opinion because, by running a statistical simulation with XLSim, he “[s]imply pluggfed] in numbers and let[ ] a program make calculations for which the witness is otherwise unqualified[, which]
Berry also criticizes Mr. Filler’s assumption that Packgen had a one-in-ten chance of selling Cougars to each of the 37 refineries, insisting it is an inadmissible “guess” that is “not based on reliable or relevant facts, data or methodology.” Id. at 29-34. Berry maintains that “this is not simply a matter of an expert exercising discretion as to ... facts and data .... [,]” because the First Circuit has held that “where there is a gap in data related to the number of potential sales, experts must obtain relevant, reliable data, rather than base his or her opinion on surmise and conjecture.” Id. at 30 (citing Fishman Transducers, Inc. v. Paul, 684 F.3d 187, 195 (1st Cir.2012)). It listed certain means for obtaining relevant, reliable data, such as information from customers, market research, and sales data from competitors, and noted that “while these endeavors can be ‘difficult, time-consuming and expensive efforts ..., without them [the expert’s] report [is] merely a basis for jury speculation and his testimony [is] properly excluded.” Id. (quoting Paul, 684 F.3d at 195) (alteration in original). Pointing to Mr. Filler’s testimony that “[t]here is no empirical data” supporting his ten percent success rate, id. at 31 (quoting Tr. Vol. I 168:20), Berry argues that “the entire opinion is pure speculation and conjecture” and that “only Mr. Filler’s ipse dixit connects the existing data to Mr. Filler’s” ten percent estimation. Id. at 32, 34.
Last, Berry contends “the evidence shows that the 37 refineries were not purchasing cougars for reasons separate and distinct from the alleged issue with the Berry product.” Id. at 34. It argues that “Mr. Filler avoided this obvious gap in the evidence by incorrectly assuming that the Berry product caused the 37 refineries not to purchase Packgen’s product!,]” and— after putting forth what it submits is evidence that some refineries had unrelated reasons for not purchasing Packgen’s containers — argues that Mr. Filler’s opinions are inadmissible on this ground. Id. at 34-36.
Summarizing its arguments related to Mr. Filler’s lost profits analysis of the 37 refineries, Berry argues that “[a]s with CRI, any one of these issues is sufficient to exclude Mr. Filler because it will render the entirety of his opinion unreliable.” Id. at 36-37.
B. Packgen’s Opposition
Packgen submits that the Defendants have disregarded the principle that “the district court’s gatekeeping function ought not to be confused with the jury’s responsibility to separate wheat from chaff.” PI. ’s Opp’n at 3 (quoting Crowe v. Marchand, 506 F.3d 13, 18 (1st Cir.2007)). It points out that “‘but for’ damages calculations force experts to construct ... an uncertain and to some extent unknowable world in which the defendant’s wrongful actions never occurred,” id. at 4-5, that damages experts “must rely on assumptions and on
With this backdrop, Packgen explains that it retained Mr. Filler to compute Packgen’s lost profit damages incurred as a result of the product failure, which Mr. Filler defined as “sales not made minus costs avoided.” Id. at 8 (quoting Tr. Vol. I 10:4). It maintains that he is “well-qualified for this task”; his credentials include being “a certified public accountant and an expert in business valuation, business interruption claims, and lost profits damages” who has served as an expert witness in over 100 cases. Id. In the course of his work for Packgen, Mr. Filler “investigated Packgen’s finances and operations” by reviewing financial data including both CPA-reviewed and internal financial statements, sales history, and corporate tax returns. Id. He made three trips to Packgen’s manufacturing plant, where he questioned its bookkeeper and interviewed its company president on topics such as Packgen’s manufacturing capacity, the market for catalyst containers and the many factors that could affect sales, and the impact of the product failure. Id. He also consulted a database of purchase and sale transactions in the industry for companies similar to Packgen. Id. at 9; Tr. Vol. I 14:1-7. Packgen then explains that Mr. Filler considered the “appropriateness” of each of the “four accepted methodologies for computing lost profits,” and ultimately “chose the sales projection methodology as the most appropriate” for computing Pack-gen’s damages. PL’s Opp’n at 9. It explains that “[t]he purpose of [this] method is to project sales that would have occurred but for the incident in question.” Id.
Next, Packgen explains the models Mr. Filler used to calculate lost sales for CRI and for the 37 refineries. For CRI, Pack-gen notes that Mr. Filler relied on “actual sales ..., not internal sales forecasts” and that he projected sales that “would have occurred but for the product failure by using the number of units sold and unit prices from the six-month sales history of the customized Cougars.” Id. It states that he then analyzed CRI’s costs and deducted them from gross revenues to arrive at net profits, after determining and applying an appropriate discount rate. Id. The model “shows the annual net present value of Packgen’s lost profits for each of the ten years following the product failure.” Id.
For the refineries, Mr. Filler chose a “probabilistic model ... to account for future contingencies,” such as changes in technology or competition because “Pack-gen did not have a lengthy track record selling the new foil-laminated Cougars to refineries.” Id. at 10. To implement this model, he “used a simulation software program to run 5,000 trials with a broad range of potential outcomes” given the possibility of contingencies — contingencies that he translated into estimates of “best case, most likely case, and worst case scenarios for unit sales, unit prices, and costs.” Id. Packgen asserts that “[u]sing
Packgen asserts that Mr. Filler’s opinions are admissible under Daubert and rejects Berry’s contention that Mr. Filler “is not qualified to offer opinions ‘that rely in any way on statistics,’ ” as a “sweeping generalization [that] finds no support in either the case [ ]law or financial damages treatises.” Id. at 11 (quoting Defs. ’ Mem. at 9). Packgen contends that “linear regression is a simple statistical tool taught in introductory college statistics courses such as that taken by Filler,” and by consequence that the “Defendants’ argument is akin to suggesting that a damages expert cannot use algebra equations unless he has a Ph.D. in mathematics.” Id. It also indicates that “[d]amages and business valuation experts like Filler routinely use this statistical tool in their work,” and point out that treatises written for such experts — including a treatise edited by the Defendants’ damages expert and counsel— explain linear regression, and instruct experts on how to use such methods but do not include any caveats that only statisticians can employ such methods. Id. at 12 (citing Nanoy Fannon & Jonathan M. Dun-itz, eds., The Comprehensive Guide to Lost Profits and OtheR Commercial Damages, 35, 232 (3rd ed.2014)). Packgen also contends that caselaw fails to support the Defendants’ position, arguing that cases cited by Berry “do not even discuss Dau-bert, lost profits damages, or linear regression.” Id. at 13. By contrast, Packgen cites lost profits cases where “nonstatisti-cians offer opinions predicated on linear regressions.” Id. (citing Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768, 780 & 793 (6th Cir.2002); Honeywell Int’l Inc. v. Air Products & Chems., Inc., 858 A.2d 392, 426 (Del.Ch.2004)).
With this backdrop, Packgen maintains that Mr. Filler “is particularly well-suited as a damages expert to use linear regression ... because he has extensive experience with statistical tools.” Id.- He participates in annual continuing professional education that includes statistics, employs daily use of statistical tools and has an extensive library on statistical resources, and writes and teaches on the use of statistical tools in lost profits analysis. Id. at 13-14. Packgen also emphasizes the limited scope of Mr. Filler’s statistical analysis, noting he used linear regression “solely” for the purpose of allocating overhead costs among the three broad sales categories for Packgen. Id. at 14; Tr. Vol. II 352:18-19. Acknowledging that the linear regression test was not statistically significant, Packgen maintains that Mr. Filler found the test “helpful and an improvement over the simple average,” and emphasized that his overhead allocation would not haye changed, if he had used a simple average. Pl.’s Opp’n at 14. For these reasons, Packgen claims Mr. Filler is qualified as an expert by “knowledge, skill, experience, training, or education” under Federal Rule of Evidence 702 and points out that the First Circuit has emphasized that “expert witnesses need not have overly specialized knowledge to offer opinions.” Id. (citing Levin v. Dalva Bros., Inc., 459 F.3d 68, 78 (1st Cir.2006)).
Packgen separately rejects the Defendants’ theory that Mr. Filler is not qualified to render opinions based on a statistical simulation model. Id. at 15-19. It argues that simulation programs are designed for users lacking expertise in statistics, that Mr. Filler would be qualified even if statistical expertise were required, that he is qualified to explain the model and interpret its results, and that his overall lost profits model is a straightforward mathematical calculation requiring no sta
Packgen next puts forth that Mr. Filler’s opinion that damages regarding CRI should be calculated to extend for ten years is admissible.
With respect to the market for catalyst containers, Packgen explains that Mr. Filler noted that only two options were on the market in 2008 and determined that “CRI saved substantial amounts of money” by purchasing Packgen’s new product. Id. at 21-22. Mr. Filler further relied on Pack-gen’s industry expert’s opinion that “Pack-gen has excellent market presence and expertise in the catalyst container industry.” Id. at 22. Packgen also maintains that the events of the last six years informed Mr. Filler’s loss period for the CRI damages. Id. Packgen “continues to successfully operate its business and to manufacture and sell catalyst containers” and “the competitive environment in which Packgen operated when it sold customized Cougars to CRI has not changed.” Id. Finally, Mr. Filler considered and ruled out political, economic, technological, and other reasons why CRI would have stopped buying Cougars if the product failure had not occurred. Id. at 22-23.
Packgen argues that these facts and data “support [Mr. Filler’s] opinion that Packgen would have continued to sell Cougar containers to CRI during the past six years in the same amounts and at the same prices as before the incident,” and that those sales would have continued for
Packgen likewise rejects Berry’s interpretation of Maine law. It argues that Berry has confused the admissibility of expert opinions under the Daubert standard with the issue presented in the Maine Law Court cases that Berry cites; in those cases, Packgen submits, the issue was whether a plaintiff presented enough evidence to permit a factfinder to award damages. Id. at 25-26 (“Defendants shift from scrutinizing the quantity of the facts and data, which is the proper focus of a Dau-bert inquiry, to assessing the quality of the evidence”). Packgen argues that this issue “is the domain of summary judgment and post-trial motions, not Daubert.” Id. at 26. It also argues these cases do not establish that the ten year loss period contravenes Maine law. Id. Packgen explains that in Eckenrode, the plaintiff sought future lost profits from a golf pro shop he had operated for only one season and — without any damages expert — “presented no evidence whatsoever as to the profitability of the pro shop during the following year.” Id. at 26 (citing Eckenrode v. Heritage Mgmt. Corp., 480 A.2d 759 at 766 (Me.1984)). Under these facts, the Law Court overturned the damages judgment in the plaintiffs favor. Ecken-rode, 480 A.2d at 766. Packgen similarly rejects Berry’s citation to Reardon, where the plaintiff “relied on evidence of profits from the first few days of the restaurant’s operation” to justify a reward of lost profits, a “meager track record [that] was insufficient to support the judgment.” PI. ’s Opp’n at 26 (citing Reardon v. Lovely Dev. Inc., 2004 ME 74, ¶ 12, 852 A.2d 66, 70). By contrast, Packgen argues, it “is an established business with an extensive track record of sales to CRI, and the evidence shows that the circumstances generating those sales have not changed since the product failure.” Id. Packgen further asserts that “cases in other jurisdictions allow damages periods of ten years,” and that “the length of the damages period is a question for the jury.” Id. at 27 (collecting cases).
Packgen insists that the Defendant has “wrong[fully] aecuse[d] Filler of commingling lost profits and business valuation methodologies” with respect to Packgen’s damages, and that even if Mr. Filler had blended the methods, it would not render his opinions inadmissible. Id. at 28. It argues that Mr. Filler “indisputably determined Packgen’s lost profits,” id. at 30, and explains that this method was appropriate because Packgen “lost a substantial income stream when CRI stopped buying. ... Lost profits are the proper measure of this income stream.” Id. at 29. It also argues that “[e]ven if [he] had commingled the methodologies — which he did not — this would not render his opinions
Next, Packgen argues that “[a]s with the CRI damages, Defendants overlook the facts and data available to Filler,” id. at 32, and submits that the facts and data reviewed, “plus Filler’s professional judgment and experience as a damages expert, support the ten-year damages period for the refineries.” Id. at 34. Packgen explains Mr. Filler learned it had actively marketed its new Cougar containers, concentrating on refineries that would reap significant cost savings from using them. Id. at 32. All refineries included in the damages model had informed Packgen’s sales manager that they would be placing orders within a year, so Mr. Filler’s calculations were limited “to the refineries [Packgen] lost as customers because of the product failure.” Id. Mr. Filler also considered the “substantial economic advantages of Cougars” and Packgen’s business reputation, and he reviewed Packgen’s actual sales of Cougars during the past six years, through which he confirmed the “validity of a ten-year loss period” on the basis that “it would take five years for the negative effects of the product failure to dissipate and then five years for refinery sales to recover to the level they would have reached if the product failure had not occurred.” Id. at 33-34. Packgen also disputes the contention that it “cannot claim ... as damages profits that [it] would not have earned in the first place because the product was new and in the process of ramping up,” Defs. ’ Mem. at 18 n. 16, insisting that the “Defendants apparently fail to understand that Filler’s damages model for the refineries recognizes this fact: his ‘but for’ sales start with 8.2% of refineries’ needs in year one and slowly build up to 51% in year ten.” PI. ’s Opp’n at 34.
Based on much of the same data supporting Mr. Filler’s conclusion as to the appropriate loss periods, Packgen also maintains that Mr. Filler’s assumption of Packgen having a one-in-ten chance each year of selling the new Cougars “more than meets Daubert standards.” Id. at 38. It notes that Packgen informed Mr. Filler it believed the success rate would have been “much higher than 10%,” but Mr. Filler rejected his client’s belief after finding no hard evidence to confirm a higher number. Id. It also notes that “[t]he flip side of Filler’s success 'rate” is further evidence of a reliable opinion because it effectively assigns a 90% chance of not selling Cougars “even though Packgen expected to make sales to all these refineries within one year” but for the product failure. Id.
Rejecting the Defendants’ argument that “no empirical data” supports the success rate, Packgen concludes that “[r]ely-ing on the available information, Filler exercised his professional judgment to choose an appropriate success rate. This is what damages experts do.” Id. at 39. It
Finally, Packgen rejects Berry’s contention that Mr. Filler’s opinions are inadmissible for “overlooking] evidence that the refineries did not purchase Cougars for reasons unrelated to the product failure.” Id. at 41 (citing Defs. ’ Mem,, at 34-36). It insists that Berry has twisted, misunderstood, and selectively used the deposition testimony of Packgen’s sales manager to manufacture such an inference from the record, and maintains that “[r]egardless, Defendants’ argument concerning the reasons for the lost sales is, at the most, more grist for the cross-examination mill. It has no bearing on the admissibility of Filler’s opinions under Daubert.” Id. at 42.
In conclusion, Packgen insists that Berry is disputing “the quality of the facts and data available