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Jacked Up, LLC v. Sara Lee Corp.

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

May 3, 2018

JACKED UP, LLC, Plaintiff,
v.
SARA LEE CORPORATION, Defendant.

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay, United States District Judge

         Plaintiff Jacked Up, LLC (“Jacked Up”) has filed Objections to the Magistrate Judge's February 15, 2018 Memorandum Opinion and Order granting Defendant Sara Lee Corporation's (“Sara Lee”) Amended Motion to Exclude Testimony of Plaintiff's Damages Expert. Sara Lee has filed a Response to Jacked Up's Objections. Because the Magistrate Judge's decision is not dispositive of Jacked Up's claims, the question before the court is whether the decision is “clearly erroneous or contrary to law.” Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A). For the following reasons, the court overrules in part and sustains in part Jacked Up's Objections; concludes the Magistrate Judge's decision to exclude the testimony of Jacked Up's damages expert is neither clearly erroneous nor contrary to law; and affirms the Magistrate Judge's decision.

         I. Background

          In or around September 2011, after several months of negotiations and product development, 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 ingredients to Sara Lee in exchange for royalties. The initial term of the Licensing Agreement was five years, followed by a three-year renewal term. The Licensing Agreement, however, contained a number of termination clauses, triggered by various dates and events. In or around October 2011, Sara Lee announced the sale of its North American Beverage Division to J.M. Smucker Company (“Smucker”), and, because of concerns that Smucker would not assume the Licensing Agreement with Jacked Up, the deal broke down.

         On November 7, 2011, before Sara Lee sent Jacked Up a formal termination letter, it brought a breach of contract claim against Sara Lee in Texas state court. On November 18, 2011, Sara Lee provided Jacked Up written notice of its intention to terminate the Licensing Agreement. 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 undersigned granted Smucker's and Sara Lee's motions for summary judgment and entered judgment in favor of Sara Lee and Smucker. Jacked Up, L.L.C. v. Sara Lee Corp., 2015 WL 3513195 (N.D. Tex. June 4, 2015) (Lindsay, J.). Jacked Up appealed.

         On appeal, the United States Court of Appeals for the Fifth Circuit affirmed the court's decision insofar as it granted summary judgment in favor of Smucker, and in favor of Sara Lee on Jacked Up's breach of fiduciary duty claim, but reversed the court's decision granting summary judgment in favor of Sara Lee on Jacked Up's claims for breach of contract, fraud, and fraudulent inducement. Jacked Up, L.L.C. v. Sara Lee Corp., 854 F.3d 797, 817 (5th Cir. 2017).[1] The Fifth Circuit remanded Jacked Up's claims for breach of contract, fraud, and fraudulent inducement for further proceedings. Id.

         Of note, the Fifth Circuit declined to affirm summary judgment on the alternative ground that Sara Lee and Smucker had asserted, namely, “that Jacked Up's evidence of lost profits is speculative.” Id. at 816. It stated 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. The Fifth Circuit, however, 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.[2]

         Following remand, Sara Lee sought leave to refile its Motion to Exclude the Testimony of Plaintiff's Damages Expert (see Doc. 85), which the court had previously denied as moot in its order granting summary judgment in favor of Smucker and Sara Lee. After considering Sara Lee's motion for leave, Jacked Up's response, and the Fifth Circuit's opinion, including its recognition that, on remand, the court may choose to conduct a Daubert inquiry to determine whether the Janik Report is admissible opinion evidence under Federal Rule of Evidence 702 (“Rule 702”), the court granted Sara Lee's motion for leave. On November 27, 2017, Sara Lee filed its Amended Motion to Exclude Testimony of Plaintiff's Damages Expert (the “Motion to Exclude”) (Doc. 188). On November 28, 2017, pursuant to 28 U.S.C. § 636(b), the court referred the Motion to Exclude to United States Magistrate Judge David Horan. On February 15, 2018, after the Motion to Exclude was fully briefed by the parties, Judge Horan granted Sara Lee's Motion to Exclude, concluding that the opinions of Jacked Up's damages expert, E.J. Janik, were inadmissible under Rule 702. On March 1, 2018, Jacked Up filed Objections to the Magistrate's Order Granting Defendant's Motion to Exclude Testimony of Plaintiff's Damages Expert (“Objections”) (Doc. 202). On March 26, 2018, Sara Lee filed its Response to Plaintiff's Objections to the Magistrate's Order Granting Defendant's Motion to Exclude Testimony of Plaintiff's Damages Expert (Doc. 207).

         II. Legal Standards

         A. Standard for Reviewing Magistrate Judge's Decision

         A magistrate judge's determination regarding a dispositive matter is reviewed de novo if a party timely objects. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b). A magistrate judge's determination regarding a nondispositive matter, as in this case, is reviewed under the “clearly erroneous or contrary to law” standard. 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72(a) (“The district judge in the case must . . . modify or set aside any part of the order that is clearly erroneous or is contrary to law.”). This highly deferential standard requires the court to affirm the decision of the magistrate judge unless “on the entire evidence [the court] is left with a definite and firm conviction that a mistake has been committed.” Baylor Health Care Sys. v. Equitable Plan Servs., Inc., 955 F.Supp.2d 678, 689 (N.D. Tex. 2013) (Lindsay, J.) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). As explained by anther district court in this Division:

The clearly erroneous standard applies to the factual components of the magistrate judge's decision. The district court may not disturb a factual finding of the magistrate judge unless, although there is evidence to support it, the reviewing court is left with the definite and firm conviction that a mistake has been committed. If a magistrate judge's account of the evidence is plausible in light of the record viewed in its entirety, a district judge may not reverse it. The legal conclusions of the magistrate judge are reviewable de novo, and the district judge reverses if the magistrate judge erred in some respect in [his] legal conclusions. [T]he abuse of discretion standard governs review of that vast area of choice that remains to the [magistrate judge] who has properly applied the law to fact findings that are not clearly erroneous.

Arters v. Univision Radio Broadcasting TX, L.P., 2009 WL 1313285, at *2 (N.D. Tex. May 12, 2009) (Fitzwater, C.J.)) (citations and internal quotations marks omitted).

         B. Admissibility of Expert Testimony - Federal Rule of Evidence 702

          In a diversity case, the admissibility of evidence is a procedural issue governed by federal law. See Reed v. General Motors Corp., 773 F.2d 660, 663 (5th Cir. 1985). Rule 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., 2017 WL 345641, at *2 (N.D. Tex. Jan. 24, 2017) (Fitzwater, J.) (internal quotation marks omitted) (citing Kumho Tire Co., 526 U.S. at 147). Here, the parties dispute only the relevance and reliability of Janik's opinions.

         To be relevant, “expert testimony [must] ‘assist the trier of fact to understand the evidence or to determine a fact in issue.'” Pipitone v. Biomatrix, Inc., 288 F.3d 239, 245 (5th Cir. 2002) (quoting Daubert, 509 U.S. at 591). “Relevance depends upon ‘whether [the expert's] reasoning or methodology properly can be applied to the facts in issue.'” Knight v. Kirby Inland Marine Inc., 482 F.3d 347, 352 (5th Cir. 2007) (quoting Daubert, 509 U.S. at 593); see also Fed. R. Evid. 702(d) (requiring that an “expert has reliably applied the principles and methods to the facts of the case”).

         “Reliability is determined by assessing ‘whether the reasoning or methodology underlying the testimony is scientifically valid.'” Knight, 482 F.3d at 352 (quoting Daubert, 509 U.S. at 592-93); see also Fed. R. Evid. 702(c) (requiring that “testimony [be] the product of reliable principles and methods”). “The reliability analysis applies to all aspects of an expert's testimony: the methodology, the facts underlying the expert's opinion, the link between the facts and the conclusion, et alia.” Knight, 482 F.3d at 355. “The reliability prong mandates that expert opinion be grounded in the methods and procedures of science and . . . be more than unsupported speculation or subjective belief.” Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th Cir. 2012) (internal quotation marks omitted). “[T]here is no requirement that an expert derive his opinion from firsthand knowledge or observation.” Deshotel v. Wal-Mart La., L.L.C., 850 F.3d 742, 746 (5th Cir. 2017) (internal quotation marks omitted).

         “The focus, of course, must be solely on principles and methodology, not on the conclusions that they generate.” Daubert, 509 U.S. at 595. “The proponent need not prove to the judge that the expert's testimony is correct, but she must prove by a preponderance of the evidence that the testimony is reliable.” Johnson, 685 F.3d at 459 (internal quotation marks omitted). If “there is simply too great an analytical gap between the [basis for the expert opinion] and the opinion proffered, ” the court may exclude the testimony as unreliable. General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).

         Courts consider the following non-exclusive list of factors when conducting the reliability inquiry:

(1) whether the theory or technique has been tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) the known or potential rate of error of the method used and the existence and maintenance of standards controlling the technique's operation; and (4) whether the theory or method has been generally accepted by the scientific community.

Johnson, 685 F.3d at 459 (internal quotation marks omitted).

         The burden is on the proponent of the expert testimony to establish its admissibility by a preponderance of the evidence. See Daubert, 509 U.S. at 592 n.10; see also Johnson, 685 F.3d at 459. The court's inquiry is flexible in that “[t]he relevance and reliability of expert testimony turns upon its nature and the purpose for which its proponent offers it.” United States v. Valencia, 600 F.3d 389, 424 (5th Cir. 2010) (citation omitted). “As a general rule, questions relating to the bases and sources of an expert's opinion affect the weight to be assigned that opinion rather than its admissibility and should be left for the [trier of fact's] consideration.” Viterbo v. Dow Chem. Co., 826 F.2d 420, 422 (5th Cir. 1987). “Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596.

         III. Analysis

         A. Summary of Parties' Contentions as to Admissibility of Janik's Testimony

         In its Motion to Exclude, Sara Lee argued that Janik's opinions were unreliable because he: (1) failed to test or verify the reliability of the Sara Lee's pro forma on which he relied (the “Sara Lee Pro Forma”); (2) made other untested and unverified assumptions to increase Jacked Up's purported damages; (3) failed to consider or explain conflicting evidence and other relevant considerations; and (4) failed to deduct Jacked Up's expenses. Sara Lee also argued that Janik's opinions were irrelevant because: (1) Jacked Up was not entitled to lost profits under Illinois law; and (2) the Licensing Agreement limited Jacked Up's potential recovery to only one year.

         In response to Sara Lee's Motion to Exlcude, Jacked Up argued that Janik's opinions were reliable because: (1) the Sara Lee Pro Forma was objectively reliable given that 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 applied a discount to his model. Jacked Up further contended that Sara Lee's arguments about the reliability of Janik's opinions went 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.” Jacked Up's Resp. to Mot. to Exclude 27 (Doc. 192). Finally, with respect to the relevance of Janik's opinions, Jacked Up argued that its recovery of lost profits is not ...


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