Steves and Sons, Inc. v. Jeld-Wen, Inc., No. 3:2016cv00545 - Document 1583 (E.D. Va. 2018)
Court Description: MEMORANDUM OPINION re: 1052 COUNTERCLAIM DEFENDANTS STEVES AND SONS, INC., EDWARD STEVES, AND SAM STEVES' MOTION IN LIMINE TO EXCLUDE TESTIMONY OF JELD-WEN DAMAGES EXPERT JOHN JAROSZ. Signed by District Judge Robert E. Payne on 05/10/2018. (tjoh, )
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Steves and Sons, Inc. v. Jeld-Wen, Inc. Doc. 1583 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Richmond Division STEVES AND SONS, INC., Plaintiff, Civil Action No. 3:16-cv-545 V. JELD-WEN, INC., Defendant. MEMORANDUM OPINION This matter is before the Court on COUNTERCLAIM DEFENDANTS STEVES AND SONS, INC., EDWARD STEVES, AND SAM STEVES' MOTION IN LIMINE TO EXCLUDE JAROSZ (EOF No. TESTIMONY 1052). For OF the JELD-WEN reasons DAMAGES set EXPERT forth below, JOHN the motion was denied. See EOF No. 1536. BACKGROUND JELD-WEN, Inc. ("JELD-WEN") has asserted two counterclaims against Steves and Sons, Inc. ("Steves")^ based on Steves' alleged misappropriation of JELD-WEN's trade secrets related to two general categories: (1) the manufacturing process for molded doorskins, and manufacturing (2) financial procedures and data concerning doorskin sales. JELD-WEN's The factual ^ Steves filed this motion jointly with Sam Steves and Edward Steves, so the term "Steves" as used in this memorandum refers to all three parties for the sake of simplicity. Dockets.Justia.com background underlying those claims is described at length in the Court's recent opinion denying summary judgment on certain aspects of those claims. See Summary Judgment Op. (EOF No. 1424) at 2-7. To prevail establish, on inter its alia, misappropriation that it claims, suffered JELD-WEN damages. Id. must at 18. JELD-WEN seeks damages in the form of Steves' unjust enrichment from the misappropriation or, alternatively, a reasonable royalty. Damages Summary Judgment Op. (EOF No. 1581) at 6; see also 18 U.S.C. § 1836(b)(3)(B)(i)-(ii); Code § 134A.004(a). Consequently, Tex. JELD-WEN Civ. Prac. & retained a Rem. damages expert, John Jarosz ("Jarosz"), who analyzed JELD-WEN's damages under three scenarios is different discussed scenarios. in more The detail substance in the of Court's those opinion denying summary judgment on JELD-WEN's misappropriation damages claims. See Damages Summary Judgment Op. at 8-11. Briefly restated here, Jarosz's theories are as follows: (1) that Steves can use certain process-related trade secrets to achieve reduced costs for each doorskin that it produces in the event that it builds a doorskin manufacturing plant ("Scenario One"); (2) that Steves has trade used, and secrets in will continue to negotiations for use, lower certain doorskin financial prices with JELD-WEN or other doorskin suppliers ("Scenario Two"); and (3) that JELD-WEN is entitled to a reasonable royalty based on the combination benefits of two approach quantitative and the methods, licensing the incremental comparables approach ("Scenario Three"). Steves moves to exclude grounds. First, Merrell Dow argues on Fed. R. Evid. 702 and Daubert v. Pharmaceuticals, Inc., 509 U.S. 579 (1993), Steves that conflict relying Jarosz's testimony on two general all with three the scenarios jury's finding are in unreliable the because antitrust case they that Steves will not be able to continue its business past September 2021. Second, Steves contends that Jarosz should not be permitted to testify about several issues under Fed. R. Civ. P. 37(c)(1) because he failed to disclose certain opinions in his opening report. DISCUSSION I. Rule 702 A. Legal S-tandard The admissibility of expert testimony is governed by Rule 702. Under that rule, "[a] witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if" all of the following conditions are met: (a) the expert's scientific, technical, or other specialized knowledge will help the trier evidence issue; of or fact to to understand determine a fact the in (b) the testimony is based on sufficient facts or data; (c) the testimony is the product reliable principles and methods; and of (d) the expert has reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702. These four factors reflect the two separate components of the Daubert inquiry: whether the proposed testimony is relevant and whether it is reliable. See Nease v. Ford Motor Co. ^ 848 F.3d 219, 229 (4th Cir. 2017) (citing Daubert, 509 U.S. at 597); see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999). The proponent of the testimony must satisfy both elements by a preponderance of the evidence. Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001), and the Court must fulfill its special "gatekeeping obligation" to ensure that the proponent has done so, Kumho Tire, 526 U.S. at 147. However, courts have "broad discretion under Rule 702." United States v. Gastiaburo, 16 F.3d 582, 589 (4th Cir. 1994). Steves' Daubert. When motion concerns assessing only reliability, the reliability courts "must prong ensure of that the proffered expert opinion is based on scientific, technical, or other specialized knowledge and not on belief or speculation, and inferences must be derived using scientific or other valid methods." Nease, 848 (internal quotations F.3d at omitted). 229 (emphasis Accordingly, in original) "[a]n expert's opinion should be excluded when it is based on assumptions which are speculative Const. Co. Inc. and are not supported by the record." Tyger v. Pensacola Const. Co., 29 F.3d 137, 142 (4th Cir. 1994). B. Analysis Steves contends that Jarosz's three scenarios are unreliable because they are based on assumptions about Steves' future conduct Steves' that antitrust are and precluded breach of by the contract jury claims verdict against for JELD- WEN. Those claims pertained to JELD-WEN's 2012 acquisition of another doorskin supplier and JELD-WEN's subsequent breaches of its long-term doorskin supply agreement with Steves ("the Supply Agreement"). Summary Judgment Op. at 7-8. In reaching a verdict in Steves' favor on determined caused that some its JELD-WEN injury to antitrust claim, the committed Steves. an See jury antitrust Verdict necessarily violation Form (ECF that No. 1022) in 1-2. The jury then awarded Steves future lost profits damages, id. 1 3(b), which it deciding that would be "unable Steves could only to have done maintain a after viable interior molded doorskin manufacturing business when the [Supply Agreement] terminates therefore be on September 10, 2021, and w[ould] unable to exist as a company." Jury Instructions (ECF No. 1025), Instruction No. 35. To reach that conclusion, Steves says, the jury must have also rejected JELD-WEN's arguments that Steves could not succeed with certain steps to remain in business when the Supply as obtaining building doorskins its own from doorskin Agreement terminates, such JELD-WEN or manufacturing other plant. suppliers or Consequently, Steves now contends that Jarosz cannot posit damages scenarios that would require the jury in this case to find that Steves will successfully doorskin Two suppliers clearly Scenario depend Three build a after 2021. on relies benefits approach. scenarios require one on Thus, the doorskin of both plant or Nonetheless, those things occurrences under realization Steves' of negotiate Scenarios its One and place, taking for with and incremental logic, circumstances all three that the antitrust jury determined could never occur. Even though Steves' interpretation of the Verdict Form and Jury Instructions appears to be correct (despite the absence of any special interrogatories about particular factual issues, see Verdict Form 1-3), its argument fails here. Setting aside JELD-WEN's several procedural contentions,^ Steves cannot show ^ JELD-WEN asserts that: (1) motions in limine are improper if they raise dispositive issues that are better suited for summary judgment motions, see Louzon v. Ford Motor Co., 718 F.3d 556, 562-63 (6th Cir. 2013); (2) Steves' argument ignores the Court's opinion bifurcating the trials in this case and the antitrust that any verdicts. of For Jarosz's scenarios verdicts to be would lead inconsistent, to two inconsistent juries must consider the same facts and reach different results. The jury in the antitrust information doorskin evidence from plant favorable case did not JELD-WEN or that negotiate prices, as relating the to know with Court trade that could Steves help doorskin acquired Steves suppliers precluded secret had the build for more admission misappropriation in a of the antitrust trial. See EOF No. 776. In contrast, the jury in this case—having viewed the full contents of JELD-WEN's statement of misappropriated trade secrets, and learned of Steves' motivations in acquiring that information—may conclude that the information will enable Steves to take certain future actions that the antitrust jury found that Steves could not. Seen this way, the potentially differing results are intuitive, not case, which was predicated on the lack of common factual issues between the two cases, see ECF No. 239 at 27-30; and (3) Steves is judicially estopped from taking its current position because it previously represented to the Court that it would not assert res judicata arguments in this case based on the results of the antitrust case. With respect to the first point, Steves had the chance to address the inconsistent verdict issue in its summary judgment papers, but for some reason declined the Court's invitation to seek leave to do so. As to the second point, there is no basis to conclude that the bifurcation decision was erroneous when issued or now. And, notwithstanding the need for bifurcation, there is some evidence that is pertinent to both cases. But, that does not mean that the antitrust verdict, based on same of the overlapping evidence, forecloses assumptions made by Jarosz in assessing damages. inconsistent. And, the record permits Jarosz to assume the possibility that Steves will take certain steps in the future, and his having done so does not render his theories unreliable. II. Rule 37(c)(1) A. Legal Standard Under Rule 26(a), for any expert witness that may be used at trial, contain, a party among must other serve things, a written "a report, complete which statement must of all opinions the witness will express and the basis and reasons for them." Fed. R. Civ. P. 26(a)(2)(B)(i). If a party fails to provide this information, it cannot rely on that evidence at trial "unless harmless." exercising the failure Id. 37(c)(1). their "broad was substantially Courts consider discretion" to justified five or factors determine whether is in a nondisclosure is substantially justified or harmless: "Ml) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent trial; (4) to which the allowing importance the of evidence the would evidence; disrupt and (5) the the nondisclosing party's explanation for its failure to disclose the evidence.'" Wilkins v. Montgomery, 751 F.3d 214, 222 (4th Cir. 2014) (quoting S. States Rack & Fixture, Inc. v. SherwinWilliams Co., 318 F.3d 592, 597 (4th Cir. 2003)). If Rule 37(c)(1) instead of" excluding courts: "(A) may has been the order violated, "[i]n nondisclosed payment of addition information the to at reasonable or trial, expenses, including attorney's fees, caused by the failure; (B) may inform the jury of the party's failure; and (C) may impose other appropriate sanctions." Fed. R. Civ. P. 37(c)(1). Courts must consider four factors when deciding on an appropriate sanction: "Ml) whether the non-complying party acted in bad faith, (2) the amount of prejudice that noncompliance caused the adversary, (3) the need for deterrence of the particular sort of non- compliance, and (4) whether less drastic sanctions would have been effective.'" Law Enf't All, of Am., Inc. v. USA Direct, Inc., 61 F. App'x 822, 830 (4th Cir. 2003) (quoting Anderson v. Found, for Advancement, Educ. and Emp't of Am. Indians, 155 F.3d 500, 504 (4th Cir. 1998)). B. Analysis Steves points to three opinions expressed by Jarosz that, Steves contends, were not in his initial report ("the Jarosz Report"). See ECF No. 1124-2 (Under Seal). First, even though the Report stated that Scenarios One and Two were "alternative" theories that relied on different events, id. SI 4, Jarosz stated during his deposition that the jury could apportion damages between those two scenarios based on its determination about the probability that each scenario would occur. Second, according to Steves, Jarosz responding to reconstructed the report of Scenario Steves' Two in report expert, damages his Michael Wallace ("Wallace") ("the Jarosz Rebuttal Report"). See ECF No. 1124-3 (Under Seal). In doing so, Jarosz allegedly accounted for different misappropriated trade secrets after he learned that the trade secrets supporting Scenario Two in the Report were not misappropriated. Finally, consider avoided Two, Steves' and as such, Steves costs those claims in that analyzing theories do not Jarosz did Scenarios reflect any not One or unjust enrichment damages. The first and third arguments are easily disposed of because they have already been raised, and rejected, in Steves' summary judgment briefing. As to the first assertion, Steves is right that Scenarios One and Two are mostly, in Jarosz's words, "flip sides of the same coin." Jarosz Dep. (ECF No. 1124-1) (Under Seal) at 48:1. The former accounts for damages if Steves builds a plant, and the latter calculates damages if Steves foregoes plant other construction suppliers. However, and instead determining buys the doorskins probabilities from of different damages scenarios and apportioning damages accordingly are tasks that the jury can perform, and there would have been no reason for allocation in Jarosz to calculate his Report. See every possible percentage Damages Summary Judgment Op. at 29-30. And, as to the third assertion, Steves is wrong to claim 10 that Jarosz did not incorporate Steves' avoided costs into his Scenario One and Two calculations. Indeed, the Report contains an entire section on those avoided costs, Jarosz Report ff 12253, and the Court has found that those costs influenced or were explicitly represented Judgment Op. in the scenarios, at 18-19, 40-42. see Furthermore, Damages to the Summary extent that Jarosz discussed the proper interpretation of his Report as to these issues—damages costs—at his deposition, that approach is acceptable. See Krakauer v. Dish Network L.L.C., (M.D.N.C. June No. 6, allocation l:14-CV-333, 2017) ("Rule and avoided 2017 WL 26(a)(2)(B) 2455095, at ^contemplates *11 that the expert will supplement, elaborate upon, explain and subject himself to cross-examination upon his report. '" (quoting Thompson v. Doane Pet Care Co., 470 F.3d 1201, 1203 (6th Cir. 2006))); Marsal v. E. Carolina Univ., No. 4:09-CV-126-FL, 2011 WL 13233801, at *3 (E.D.N.C. Apr. 15, 2011) ("[A] party need not supplement an expert report based on expert deposition testimony that simply explains and expands upon the opinions included in the report."). As a result, Jarosz's testimony on these issues should not be excluded because Steves cannot show that JELD-WEN violated Rule 26(a)(2)(B)(i) as to either topic. Steves' second contention requires closer examination. To calculate Scenario Two in the Report, Jarosz relied on certain financial trade secrets claimed 11 by JELD-WEN that Jarosz concluded had already given Steves negotiating leverage in dealing with doorskin suppliers, and would continue to do so in likely future negotiations. Access to JELD-WEN's per-plant doorskin input costs therefore might allow Steves to achieve a $0.26 cost reduction for each doorskin. See Jarosz Report SIf 174-77. However, Wallace indicated in his report that Steves did not obtain the information upon which that specific reduction relied. In response, Jarosz noted in the Rebuttal Report that "it appears that Steves was not explicitly given the document I cited in my analysis of the financial Trade Secrets." However, he pointed out, in the same sentence, that "the Trade Secret information Steves did have is sufficient to calculate plant-specific costs." Jarosz Rebuttal Report S[ 74. Jarosz then explained that Steves still could have obtained a $0.20 cost reduction in negotiations based on the per-plant input cost information that was actually misappropriated. See id. Steves' assertion that the Rebuttal Report somehow "reveal[s] a new theory" for Scenario Two, Steves Br. (ECF No. 1054) (Under Seal) at 12, and is therefore excludable because it was not disclosed earlier, is mistaken. As the above description illustrates, in response to Wallace's criticism, Jarosz simply pointed to conclusion different documents that led to the exact same he reached in the Report: that the financial trade secrets misappropriated by Steves contain per-plant input cost 12 information Steves' that has negotiations additional evidence damages figure evidence the led overarching by will with lead in an to doorskin support of a slightly identified Jefferson in or a framework calculation report expert remains reductions suppliers. rebuttal opposing cost is or to Providing changing account acceptable unchanged. in See a for where Snider- V. Amigo Mobility Int'l, Inc., No. 2:15-CV-406, 2016 WL 4424954, at *4 (E.D. Va. Aug. 17, 2016), aff'd, 678 F. App'x 91 (4th Cir. report: to 2017) refute ("^This a is the defendant's very purpose expert's of a arguments reply and to provide further support, rather than abandoning, one's initial opinions.'" (quoting Kleen Prods. LLC v. Int'l Paper, 306 F.R.D. 585, 592 (N.D. 111. 2015))); Sloan Valve Co. v. Zurn Indus., Inc., No. 10 C 204, 2013 WL 3147349, at *2 (N.D. 111. June 19, 2013) ("[R]ather than basis for the plaintiff's refute [the offering a calculation expert] of the included new the defendant's expert]'s opinion collateral [new] and unit changing the sales, [the calculation . . . criticisms."). Just as to in Sloan Valve, the different foundations for the calculations in the Report and the Rebuttal Report simply show that the source of the financial trade secrets does not significantly affect the doorskin cost reductions that Steves could obtain in negotiations. See 2013 WL 3147349, at *2. Thus, the different figures in those reports do not point to a Rule 26(a) violation. 13 Having concluded that JELD-WEN did not violate Rule 26(a) in any of these instances, the Court need not address whether JELD-WEN's failure to disclose opinions in Jarosz's Report was substantially addressing appears the to prejudice. justified Southern be All revealed of above the the and harmless. States harmless until explained or factors because Rebuttal the Report, Damages here, Steves nondisclosures, in Nonetheless, any suffered even if are—for Summary they briefly violation minimal were not the reasons Judgment Opinion— closely related to, or clearly implicated by, opinions contained in the Report. Therefore, any surprise to Steves is practically nonexistent. See Baker v. United States, 645 F. App'x 266, 270 (4th Cir. 2016). Steves could also explore Jarosz's purportedly "new" statements in detail at his deposition, mitigating any harm Steves might have otherwise suffered. See N.O. v. Alembik, No. l:15-CV-868, 2016 WL 1388777, at *2 (E.D. Va. Jan. 15, 2016). Finally, allowing Jarosz to testify as to these issues at trial would cause no disruption, and his testimony about these questions will be critical to JELD-WEN's damages arguments (particularly as to Scenario Two). Consequently, even if JELDWEN and Jarosz cannot offer any persuasive explanation for the nondisclosures in Jarosz's initial Report, imposing under Rule 37(c)(1) would not be appropriate here. 14 sanctions CONCLUSION For the foregoing reasons, COUNTERCLAIM DEFENDANTS STEVES AND SONS, INC., EDWARD STEVES, AND SAM STEVES' MOTION IN LIMINE TO EXCLUDE TESTIMONY OF JELD-WEN DAMAGES EXPERT JOHN JAROSZ (EOF No. 1052) was denied. It is so ORDERED. /s/ l£l_ Robert E. Payne Senior United States District Judge Richmond, Virginia Date: May J0, 2018 15
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