United States District Court, D. Maine
For PACKGEN, Plaintiff, Counter Defendant: KURT E. OLAFSEN, LEAD ATTORNEY, OLAFSEN & BUTTERFIELD LLC, PORTLAND, ME.
For BERRY PLASTICS CORPORATION, COVALENCE SPECIALTY COATINGS LLC, Defendants: PHILLIP S. BIXBY, LEAD ATTORNEY, JONATHAN M. DUNITZ, VERRILL DANA LLP, PORTLAND, ME.
For BERRY PLASTICS CORPORATION, Counter Claimant: JONATHAN M. DUNITZ, PHILLIP S. BIXBY, LEAD ATTORNEYS, VERRILL DANA LLP, PORTLAND, ME.
ORDER ON MOTION TO EXCLUDE EXPERT TESTIMONY
JOHN A. WOODCOCK, JR., CHIEF UNITED STATES DISTRICT JUDGE.
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) with the Court on March 7, 2012, alleging breach of contract, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, and negligence. Compl. (ECF No. 2-2). On May 24, 2012, Packgen designated Mark G. Filler as an expert witness. Defs.' Mem. Attach. 1 Pl.'s Expert Witness Designation 1-8 (ECF No. 54-1) ( Expert Designation ). On December 10, 2013, Berry moved to exclude Mr. Filler's opinions and testimony. Defs.' Mot. and Incorporated Mem. of Law to Exclude the
Expert Test. and Ops. of Pl.'s Expert, Mark G. Filler (ECF No. 54). Packgen objected on December 19, 2013. Pl.'s Objection to Defs.' Mot. to Exclude the Expert Test. and Ops. of Pl.'s Expert, Mark G. Filler (ECF No. 55).
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. 54] to Exclude Pl.'s Expert, Mark G. Filler (ECF No. 64) ( Defs.' Mem.). Packgen responded on May 28, 2014. Pl.'s Mem. of Law 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. Packgen 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
probabilistic model instead of a deterministic model, which accounts for future contingencies such as changes in technology or competition by assigning probabilities to those contingencies. Id. at 10 (citing Tr. Vol. I 50:20-51:19). Packgen contends that this model also " depicts the annual net present value of lost profits for each year of the ten-year loss period for the refineries." Id. at 10-11 (citing Tr. Vol. I 75:20-76:3; Ct. Ex. 13A at 1 (ECF No. 60).
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 (1992), 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."  Id. at 9 (quoting Wilkins v. University of Houston, 662 F.2d 1156, 1157 (5th Cir. 1981)). Berry indicates that " Mr. Filler testified that he 'never said [he] was a statistics expert,'" id. at 10-11 (citing Tr. Vol. I 157:19), and, based on this statement and his limited education in the subject, that he is " not qualified to give opinions that rely on or are based in statistics." Id.
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:
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 Tr. Vol. I 108:5-9).
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[s] [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 Packgen has ignored evidence that CRI could have stopped its buying pattern, explaining that " between 2003 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 Eckenrode 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 (Conn. 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 plugg[ed] in numbers and let[ ] a program make calculations for which the witness is otherwise unqualified[, which]
avoid[s] the threshold question of whether the expert is qualified." Id. at 27 (citing LifeWise Master Funding v. Telebank, 374 F.3d 917, 928 (10th Cir. 2004); Chemipal Ltd. v. Slim-Fast Nutritional Foods Int'l, Inc., 350 F.Supp.2d 582, 592 (D. Del. 2004)). It claims that " [b]ecause Mr. Filler is wholly unqualified, there can be no 'vigorous cross-examination' of how XLSim works, the statistical validity of the model or the interpretation of the results." Id. at 27-28. They also point to testimony by their expert, who testified that a qualified statistician would not have used the computer simulation for that exercise, and that the very choice of data and parameters is so integral to the outcome that one without statistical experience cannot reliably make those choices. Id. at 28 (citing Tr. Vol. I 201:18-203:13).
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." Pl.'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
information provided by the client," id. at 5, and that, therefore, expert opinion " necessarily involves some speculation." Id. (quoting Weitz Co. v. MH Washington, 631 F.3d 510, 528 (8th Cir. 2011)). Packgen acknowledges that " [a] damages expert must, of course, rely on facts and data, not unsupported speculation." Id. However, it maintains that " the trial court examines the quantity--not the quality--of those facts and data." Id. (citing Manpower, Inc. v. Ins. Co. of Pennsylvania., 732 F.3d 796, 809 (7th Cir. 2013)). As such, " if the damages expert emphasizes certain facts or disregards others, this goes to the weight of the opinions" and therefore " the selection of data ...