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Jacked Up, LLC v. Sara Lee Corp.

United States District Court, N.D. Texas, Dallas Division

February 15, 2018

JACKED UP, LLC, Plaintiff,
v.
SARA LEE CORPORATION, ET AL., Defendants.

          MEMORANDUM OPINION AND ORDER

          DAVID L. HORAN UNITED STATES MAGISTRATE JUDGE.

         Defendant Sara Lee Corporation (“Sara Lee”) has filed an Amended Motion to Exclude Testimony of Plaintiff's Damages Expert, see Dkt. No. 188, which United States District Judge Sam A. Lindsay has referred to the undersigned United States magistrate judge for determination, see Dkt. No. 191. Plaintiff Jacked Up, LLC (“Jacked Up”) filed a response, see Dkt. No. 192, and Sara Lee filed a reply, see Dkt. No. 163. For the reasons and to the extent explained below, the Court GRANTS Sara Lee's Amended Motion to Exclude Testimony of Plaintiff's Damages Expert [Dkt. No. 188].

         Background

         In September 2011, Jacked Up and Sara Lee entered into a licensing agreement (the “Licensing Agreement”), in which Jacked Up agreed to license its brand name and proprietary energy drink ingredients to Sara Lee in exchange for royalties. In October 2011, Sara Lee announced the sale of its North American Beverage Division to J.M. Smucker Company (“Smucker”), and, amidst concerns that Smucker would not assume the Licensing Agreement with Jacked Up and that Jacked Up would not move forward with market testing, the deal broke down.

         On November 7, 2011, Jacked Up brought a breach of contract claim against Sara Lee in Texas state court. Sara Lee then removed the action to this Court, and Jacked Up added Smucker as a defendant, alleging, among other things, that Smucker interfered with the Licensing Agreement. Jacked Up later added a claim against Smucker for common law trade secret misappropriation and added claims against Sara Lee for breach of fiduciary duty, fraud, and fraudulent inducement.

         At the close of discovery, Smucker, Sara Lee, and Jacked Up each moved for summary judgment and asked the Court to strike certain summary judgment evidence. The Court granted Smucker's and Sara Lee's motions for summary judgment and entered judgment in favor of Sara Lee and Smucker. Jacked Up appealed.

         On appeal, the United States Court of Appeals for the Fifth Circuit affirmed the Court's grant of summary judgment in favor of Smucker, affirmed the Court's grant of summary judgment in favor of Sara Lee on Jacked Up's breach of fiduciary duty claim, and reversed the Court's grant of summary judgment in favor of Sara Lee on Jacked Up's breach of contract claim and fraud and fraudulent inducement claims.

         The Fifth Circuit panel declined to affirm summary judgment on the alternative ground that Sara Lee and Smucker had asserted: “that Jacked Up's evidence of lost profits is speculative.” Jacked Up, L.L.C. v. Sara Lee Corp., 854 F.3d 797, 816 (5th Cir. 2017). The Court of Appeals noted that “Jacked Up's evidence of lost profits - an expert report prepared by EJ Janik (‘Janik Report') - is critical to its claim for damages. Indeed this expert report is the only evidence of damages in the record.” Id. But the panel left “it to the district court to determine whether Jacked Up has put forth sufficient evidence of damages, ” further explaining that

[t]he district court may choose to conduct a Daubert inquiry to determine whether the Janik Report is admissible. Indeed, Sara Lee and Smucker moved to exclude the Janik Report, and this motion was still pending when the district court granted the summary judgment. We leave it to the district court to determine whether the Janik Report is admissible, and if it is admissible, whether it establishes lost profits with reasonable certainty.

Id. at 817.

         In light of the Fifth Circuit's invitation, on remand, Sara Lee filed a Motion for Leave, see Dkt. No. 184, seeking to refile its Motion to Exclude the Testimony of Plaintiff's Damages Expert, see Dkt. No. 85, which the Court had denied as moot in its order granting summary judgment in favor of Smucker and Sara Lee, see Dkt. No. 152. After Jacked Up filed its response, the Court granted Sara Lee's Motion for Leave, see Dkt. No. 187, and Sara Lee filed the Amended Motion to Exclude Testimony of Plaintiff's Damages Expert (the “Motion to Exclude”) that is before the Court, see Dkt. No. 188.

         In its Motion to Exclude, Sara Lee asks the Court to exclude Janik's opinions because they are unreliable and irrelevant.

         Sara Lee argues that Janik's opinions are unreliable because Janik (1) fails to test or verify the reliability of the Sara Lee's pro forma on which he relied (the “Sara Lee Pro Forma”); (2) makes other untested and unverified assumptions to increase Jacked Up's purported damages; (3) fails to consider or explain conflicting evidence and other relevant considerations; and (4) fails to deduct Jacked Up's expenses.

         And Sara Lee argues that Janik's opinions are irrelevant because (1) Jacked Up is not entitled to lost profits under Illinois law and (2) the Licensing Agreement limits Jacked Up's potential recovery to only one year.

         In response, Jacked Up argues that Janik's opinions are reliable because (1) the Sara Lee Pro Forma is objectively reliable because it was created and used by Sara Lee in entering the Licensing Agreement; (2) Janik did not rely exclusively on the Sara Lee Pro Forma to develop his opinions; (3) Janik accounted for Jacked Up's expenses; and (4) Janik applies a discount to his model. Jacked Up further contends that Sara Lee's arguments about the reliability of Janik's opinions go to the weight, and not the admissibility, of Janik's expert testimony and that “these are issues to be resolved by the trier of fact, not through a[] ... Daubert [m]otion.” Dkt. No. 192 at 27 of 28.

         And, as to the relevance of Janik's opinions, Jacked Up argues that its recovery of lost profits is not barred under Illinois law.

         Legal Standards

         In a diversity case, the admissibility of evidence is a procedural issue governed by federal law. See Reed v. Gen. Motors Corp., 773 F.2d 660, 663 (5th Cir. 1985). Federal Rule of Evidence 702 governs the admissibility of expert testimony and provides that

[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:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702.

         The trial court acts as a “gatekeeper” to ensure that “any and all scientific evidence admitted is not only relevant, but reliable.” Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). “Daubert's general holding - setting forth the trial judge's general ‘gatekeeping' obligation - applies not only to testimony based on ‘scientific' knowledge, but also to testimony based on ‘technical' and ‘other specialized' knowledge.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999).

         In its gatekeeping role, the Court determines the admissibility of expert testimony based on Rule 702 and Daubert and its progeny. “The court may admit proffered expert testimony only if the proponent, who bears the burden of proof, demonstrates that (1) the expert is qualified, (2) the evidence is relevant to the suit, and (3) the evidence is reliable.” E.E.O.C. v. S&B Indus., Inc., No. 3:15-cv-641-D, 2017 WL 345641, at *2 (N.D. Tex. Jan, 24, 2017) (internal quotation marks ...


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