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Jacobson Warehouse Co., Inc. v. Schnuck Markets, Inc.

United States District Court, E.D. Missouri, Eastern Division

June 25, 2019

SCHNUCK MARKETS, INC., Defendant/Counterclaim Plaintiff.



         This matter is before the Court on the following motions: Schnuck's Motion to Exclude XPO's Damages Expert Angela Morelock (Doc. No. 157); Schnuck's Motion to Exclude XPO's Expert on Prevailing Industry Standards Jerry Davis (Doc. No. 159); XPO's Motion to Strike SMI's Supplemental Rebuttal Expert Disclosure and Related Untimely Production and to Strike and Exclude SMI's Proffered Rebuttal Expert's Testimony (Doc. No. 169); XPO's Alternative Motion to Compel Continuation of Deposition of SMI Rebuttal Expert Tom O'Brien (Doc. No. 167); and XPO's Motion to Limit or Exclude Testimony of SMI's Expert Michael Powell (Doc. No. 171). The motions are fully briefed and ready for disposition.

         Legal standard

         The admission of expert testimony in federal court is governed by Federal Rule of Evidence 702. A district court acts as a “gatekeeper” when screening expert testimony for relevance and reliability. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 590-93 (1993); Russell v. Whirlpool Corp., 702 F.3d 450, 456 (8th Cir. 2012). To satisfy the reliability requirement, the party offering the expert testimony “must show by a preponderance of the evidence both that the expert is qualified to render the opinion and that the methodology underlying his conclusions is scientifically valid.” Barrett v. Rhodia, Inc., 606 F.3d 975, 980 (8th Cir. 2010) (quoting Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 757 (8th Cir. 2006)). To satisfy the relevance requirement, the proponent must show that the expert's reasoning or methodology was applied properly to the facts at issue. Id.

         The Court in Daubert emphasized that the inquiry required by FRE 702 is intended to be flexible. 509 U.S. at 594. The Daubert analysis was extended to all expert testimony, as opposed to only “scientific” testimony. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 135, 147 (1999). Due to the liberalization of expert testimony admission standards signaled by Daubert and its progeny, and the codification of this trend by FRE 702, the Eighth Circuit has held that expert testimony should be liberally admitted. Johnson v. Mead Johnson & Co., LLC, 754 F.3d 557, 562 (8th Cir. 2014) (citing United States v. Finch, 630 F.3d 1057, 1062 (8th Cir. 2011) (doubts about usefulness of expert testimony are resolved in favor of admissibility)); Robinson v. GEICO Gen. Ins. Co., 447 F.3d 1096, 1100 (8th Cir. 2006) (expert testimony should be admitted if it advances the trier of fact's understanding “to any degree”); Lauzon v. Senco Prod., Inc., 270 F.3d 681, 686 (8th Cir. 2001) (FRE 702 “clearly is one of admissibility rather than exclusion”) (quotations omitted). As long as the expert testimony rests upon “good grounds, based on what is known, ” it should be tested by the adversary process with competing expert testimony and cross-examination, rather than excluded at the outset. Id. (citing Daubert, 509 U.S. at 596). Exclusion of an expert opinion is proper “only if it is so fundamentally unsupported that it can offer no assistance to the jury.” Wood v. Minnesota Mining & Mfg. Co., 112 F.3d 306, 309 (8th Cir. 1997) (citation and quotation marks omitted).

         Angela Morelock, CPA, CFE, CFF, ABV

         Angela Morelock is a CPA and forensic accountant retained by XPO to evaluate the damage estimates prepared by Schnuck employees, and in particular Alex Dye, Schnuck's designated fact witness on the topic of damages.[1] Ms. Morelock offers nine opinions in her July 14, 2018 expert report. In opinions 1-8, she opines on the following categories of damages claimed by Schnuck: product lost; gross margin on product lost; out-of-pocket costs - Bridgeton; out-of-pocket costs - customer promotions; out-of-pocket costs - store labor; damages from lost sales; expo and other expenses; and claw backs. In opinion 9, Ms. Morelock concludes that Mr. Dye's calculations have not “reliably, or with any degree of reasonable certainty, calculated the damages that [Schnuck] may have suffered as a result of XPO's alleged actions.”

         Schnuck argues that Ms. Morelock's opinions are unreliable and thus inadmissible for three reasons. First, she bases her opinions on the premise that Mr. Dye must testify consistently with professional standards governing expert testimony given by CPAs, when the law does not require a party to prove damages through an expert or, by implication, require a lay witness to comply with standards governing professions in which they are not members. Second, Ms. Morelock impermissibly opines on the interpretation and application of the parties' Agreement and Mr. Dye's purported failure to establish Schnuck's damages with “reasonable certainty, ” both legal questions for the Court. Lastly, Schnuck argues that Ms. Morelock violates the standards of her profession by failing to maintain objectivity and assuming the role of an advocate.

         XPO responds that Mr. Dye's damages calculations are a proper subject for rebuttal expert testimony on questions relating to whether the damages were calculated with reasonable certainty or otherwise in accordance with proper methodologies. XPO further responds that while federal courts do allow lay witnesses to testify about damages, including lost profits, without being designated as experts, in those cases, the witnesses were officers and business owners. See e.g., Allied Sys., Ltd. v. Teamsters Local 604, 304 F.3d 785, 792 (8th Cir. 2002); Seubert v. FFE Transp. Servs., Inc., No. 4:11CV01651 AGF, 2013 WL 328674, at *4 (E.D. Mo. Jan. 29, 2013). Mr. Dye was neither. XPO also contends that Ms. Morelock does not opine on whether either party breached the Agreement or which of two plausible interpretations of the Agreement apply. Rather, her references to the Agreement in her opinions merely point to provisions that Mr. Dye either ignored or failed to address in his calculations. Lastly, XPO argues there is no specific evidence to support Schnuck's argument that Ms. Morelock violated the standards of her profession.

         With regard to Mr. Dye's testimony generally, “[p]ersonal knowledge or perception acquired through review of records prepared in the ordinary course of business, or perceptions based on industry experience, is a sufficient foundation for lay opinion testimony.” Lift Truck Lease & Serv., Inc. v. Nissan Forklift Corp., N. Am., No. 4:12-CV-153 CAS, 2013 WL 3092115, at *5 (E.D. Mo. June 18, 2013) (quoting Burlington N. Railroad Co. v. State of Neb., 802 F.2d 994, 1004-05 (8th Cir. 1986)); Fed.R.Evid. 701. See also Gateway Foam Insulators, Inc. v. Jokerst Paving & Contracting, Inc., 279 S.W.3d 179, 183, 187 (Mo. 2009) (en banc) (company's accountant could testify as to company's lost profits based on review of plaintiff's business records and its construction market). It is for the jury to weigh the differing testimony offered by Mr. Dye and Ms. Morelock.

         In addition, the Court has ruled in a separate order that with the exception of replacement cost of inventory loss and potential claw back damages, Schnuck's claimed damages are indirect or consequential damages and barred under the limitation of liability provisions of the parties' Agreement. Thus, any fact or expert testimony about lost profits, out of pocket expenses and lost sales is not relevant to any issue at trial. Accordingly, Schnuck's motion to exclude Ms. Morelock's testimony and opinions on these categories of damages will be denied as moot in light of the Court's rulings.

         With regard to the category of damages identified as “product lost, ” Ms. Morelock opines that Mr. Dye's calculations are not based on sufficiently reliable data and not determined using an acceptable methodology. She notes that Mr. Dye did not consider the 1% Loss/Damage Allowance referenced in the parties' Agreement, such that his calculations fail to consider relevant facts and overstate Schnuck's asserted damages. She also notes Mr. Dye did not consider product loss that might be attributable to Schnuck under Section 6(b) of the Agreement, thereby rendering his analysis of lost product incomplete and unreliable. Referencing the Inventory Claim Procedure in Section 6(h) of the Agreement, Ms. Morelock opines that Mr. Dye ignored this contract process and instead used his own method of assessing inventory loss to XPO based on Schnuck's experience at the Bridgeton warehouse. As for claw back damages, Ms. Morelock opines that Mr. Dye's calculations “gross up” warehouse expenses by including XPO's 7% management fee imposed under Section 4(a) of the Agreement before computing the claw back amount, thereby overstating the claw back amounts. She further notes, based on Mr. Dye's deposition, confusion as to whether an operating budget for warehouse expenses and cost per case was ever finalized and approved by Schnuck.[2]

         One of the functions of rebuttal testimony is to counteract evidence of the adverse party. Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 759 (8th Cir. 2006) (citation omitted). As such, rebuttal evidence may be used to challenge the evidence or theory of an opponent. Id. Ms. Morelock is qualified to rebut Mr. Dye's damages calculations on questions relating to whether the damages were calculated in such a way as to enable a jury “to make an intelligent estimate of damages as circumstance of the case will admit, ” i.e., with reasonable certainty. C.L. Maddox, Inc. v. Benham Group, Inc., 88 F.3d 592, 601 (8th Cir. 1996) (internal quotations omitted). To that end, Ms. Morelock has referenced provisions of the Agreement that were not addressed in Mr. Dye's calculations. Upon careful review of her report, it appears to the Court that she is not offering any legal conclusions or interpreting how the Agreement should be applied. See Pandora Jewelers 1995, Inc. v. Pandora Jewelry, LLC, 2011 WL 2295269, at *5 (S.D. Fla. June 8, 2011) (“[a] rebuttal expert can testify as to the flaws that she believed are inherent in another expert's report that implicitly assumes or ignores certain facts.”). Moreover, to the extent Schnuck is challenging Ms. Morelock's objectivity, any questions regarding bias and credibility are to be resolved by the jury and can be addressed on cross-examination. American Modern Home Ins. Co. v. Thomas, No. 4:16CV215CDP, 2018 WL 4404723, at *7 (E.D. Mo. Sept. 17, 2018).

         For these reasons, Schnuck's motion to exclude Ms. Morelock's report and testimony, as it relates to claims for ...

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