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Gumwood HP Shopping Partners L.P. v. Simon Property Group Inc.

United States District Court, N.D. Indiana, South Bend Division

November 22, 2016



          JON E. DEGUILIO Judge

         Now before the Court are three motions related to damages in this antitrust case between plaintiff Gumwood HP Shopping Partners, L.P. and defendant Simon Property Group, Inc. Gumwood asserts claims for a restraint of trade, monopolization, and attempted monopolization arising out of competition between Gumwood's Heritage Square shopping center and Simon's University Park Mall, and this case is set for trial. The underlying facts have been set forth at length in prior orders, and the Court assumes familiarity with those orders. Each party has filed a Daubert motion seeking to exclude or narrow the expert damages opinions offered by the opposing party. Gumwood has also filed a motion in limine seeking a ruling that, as a matter of law, it is entitled to recover for all damages inflicted on Heritage Square, and that Simon may not argue that Gumwood's damages should be reduced because the damage to Heritage Square fell on its lender. For the following reasons, the Court grants Simon's motion to exclude the damages opinion of Gumwood's expert. The Court also grants Gumwood's motion to preclude evidence or argument that any damages to Heritage Square were sustained by the lender instead of by Gumwood. The Court denies Gumwood's motion to exclude the damages opinion of Simon's expert on the remaining grounds.


         Rule 702 governs the admission of testimony by expert witnesses. Under that rule, a witness “who is qualified as an expert by knowledge, skill, experience, training, or education” may offer an opinion if the following criteria are met:

(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. A court has a gatekeeping role to ensure that expert testimony meets these criteria. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993); C.W. ex rel. Wood v. Textron, Inc., 807 F.3d 827, 834-35 (7th Cir. 2015). As the Seventh Circuit has emphasized, a court does not assess “‘the ultimate correctness of the expert's conclusions.'” Textron, 807 F.3d at 834 (quoting Schultz v. Akzo Nobel Paints, LLC, 721 F.3d 426, 431 (7th Cir. 2013)). Rather, a court must focus “solely on principles and methodology, not on the conclusions they generate.” Schultz, 721 F.3d at 432 (quoting Daubert, 509 U.S. at 595). “So long as the principles and methodology reflect reliable scientific practice, ‘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.'” Id. (quoting Daubert, 509 U.S. at 596).


         The Court first addresses Simon's motion to strike the damages testimony of Gumwood's expert, Dr. Frech. The Court next addresses Gumwood's motion to strike the damages testimony of Simon's expert, Dr. Meyer, which also encompasses Gumwood's motions in limine.

         A. Dr. Frech's Damages Opinions

         Gumwood asked its expert, Dr. H.E. Frech III, to “calculate damages to Heritage Square resulting from Simon's alleged anticompetitive actions, assuming liability.” [Frech Report ¶ 8]. Ultimately, Dr. Frech opinioned that the damages to Heritage Square were either $13.4 million or $18.6 million as of March 2015. First, before calculating the total damages sustained by Heritage Square, Dr. Frech identified the three financial effects that could result from Simon coercing or unlawfully causing a retailer not to open at Heritage Square. First, Heritage Square would lose the revenues it would have collected from that retailer. Second, Heritage Square could lose revenues from prospective tenants who chose not to lease there because of the absence of that retailer. And third, Heritage Square could lose revenues from other tenants who did lease at Heritage Square but who paid less in rent because of the absence of the other retailers. The latter two effects encompass what Dr. Frech referred to as the “snowball effect, ” which is the idea that, since shopping centers depend on assembling a complementary mix of tenants, which then attract shoppers, who in turn attract tenants, and so on, the loss of one or more key tenants at a shopping center can have spillover effects and cause the center to lose revenues from other actual and prospective tenants, as well.

         In order to calculate the damages in this case, Dr. Frech decided against attempting to trace each of those effects directly, and instead decided to measure them through the change in the value of Heritage Square, which would have reflected the collective effect of an injury to Heritage Square's revenues. This is known as a “before-and-after” method for calculating damages. Dr. Frech began by identifying what Heritage Square's appraisers and investors believed its value would be before the challenged conduct. He then identified Heritage Square's value as of December 2010, after the challenged conduct, to determine the total change in value of Heritage Square. Next, he estimated the extent to which the recession would have reduced Heritage Square's value, and he subtracted that amount. At that point, what he had identified was the difference between Heritage Square's actual value and projected value that was not due to the recession. Without further explanation or analysis, though, he then asserted that that figure represented the amount of damages that Heritage Square suffered as a result of whatever anticompetitive conduct the jury may find. With interest calculated through the date of his report, Dr. Frech put that figure at $13.4 million or $18.6 million, depending on whether the appraisal or the investment amounts were used for the “before” value.

         Simon argues that this analysis suffers from a number of flaws that render this opinion unreliable and unhelpful to the jury. The first problematic feature of Dr. Frech's damages model is that it is not connected to any particular underlying antitrust violation. Dr. Frech made the general assumption that “the anticompetitive conduct and effects occurred, ” [Frech Report ¶ 189], but did not specify what particular anticompetitive conduct and effects-which retailer or even how many retailers Simon unlawfully excluded from Heritage Square-he was attempting to trace the impact of. As the Supreme Court noted in Comcast, “‘The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.'” Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1435 (2013) (emphasis in original). In a “before-and-after” damages model, which Dr. Frech employed, that entails comparing a plaintiff's performance before and after the unlawful conduct, and then controlling for factors other than the particular unlawful conduct in question, to isolate the effect of that unlawful conduct. See Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 152 F.3d 588, 592 (7th Cir. 1998).[1] The problem here is somewhat different than in Comcast, where the expert evaluated the combined effect of four different violations but the plaintiffs could only proceed on one, leading to a mismatch between the remaining theory of liability and the damages model. Instead of evaluating too many potential violations, Dr. Frech failed to evaluate any particular violation, so it is difficult to find that he has reliably controlled for any other factors to isolate the effect of that particular violation, or that he has translated any particular unlawful conduct into an analysis of the economic impact of that conduct.

         Gumwood attempts to defend Dr. Frech's failure to tie the damages to any particular violation by arguing that “the number of retailers that failed to go to Heritage Square due to Simon's actions is unknowable, ” and that Simon should be required to bear the consequences of that uncertainty.[2] This argument confuses causation of damages with the amount of damages, though. MCI Commc'ns Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081, 1161 (7th Cir. 1983) (“The courts have always distinguished between proof of causation of damages and proof of the amount of damages.”). As Gumwood correctly notes, plaintiffs have a certain amount of leeway in measuring the amount of damages that flowed from a defendant's unlawful conduct. Bigelow v. RKO Radio Pictures, 327 U.S. 251, 264 (1946) (“[E]ven where the defendant by his own wrong has prevented a more precise computation, the jury may not render a verdict based on speculation or guesswork. But the jury may make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly.”). Plaintiffs must first establish, however, that they were injured by the defendant's unlawful conduct, and their damages model must then measure the effect of that injury: “Once causation of damages has been established, the amount of damages may be determined by a just and reasonable estimate as long as the jury verdict is not the product of speculation or guess work.” Id. (emphasis in original); U.S. Football League v. Nat'l Football League, 842 F.2d 1335, 1378 (2d Cir. 1988) (“Whatever latitude is afforded antitrust plaintiffs as to proof of damages, however, is limited by the requirement that the damages awarded must be traced to some degree to unlawful acts.”).

         Here, that means that Gumwood must first prove that it suffered a particular injury that was caused by Simon's unlawful conduct-that Simon's conduct towards certain retailers was unlawful and caused those retailers not to lease at Heritage Square. At that point, Gumwood may prove by just and reasonable inference what damages would have flowed to Heritage Square from that injury. Dr. Frech's opinion comes at that second step, but given that he did not identify any particular injury whose effect he was attempting to measure, Gumwood has not shown that he reliably measured the effect of such an injury.

         Dr. Frech's opinion attempts to bridge the gap from that indeterminate starting point by arguing that, regardless of which or how many retailers Simon unlawfully excluded from Heritage Square, the snowball effect would account for any difference between the revenues Heritage Square would have realized from those retailers and Dr. Frech's ultimate damages figures. In defending this aspect of Dr. Frech's opinion, Gumwood points to various evidence in the record that a snowball effect can occur-that given the economics of shopping centers, the loss of one or more key retailers can have spillover effects on other actual and potential tenants at a shopping center-and that the parties viewed some of the retailers in question as important to the success of their respective centers. The critical question to Dr. Frech's damages analysis, though, is not whether such indirect effects can or did occur, but whether Dr. Frech has offered a basis for quantifying those effects and connecting them to his damages opinion on the facts of this case. As to that question, Dr. Frech did not conduct any meaningful inquiry into what damages would have accrued to Heritage Square through the snowball effect. Nor did he offer an analysis of how the direct and indirect effects of any anticompetitive conduct would have conveniently added up to his same damages figure regardless of how many retailers Simon coerced. Rather, Dr. Frech relied on ipse dixit to assert that the snowball effect would have produced whatever amount of damages were necessary to reach his figures, and he made no attempt to test his hypothesis. As a result, he offered an essentially non-falsifiable opinion that the jury will be unable to tie to any particular facts in the case.

         As the Supreme Court explained in Joiner, “nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered.” Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997). That is the case here. Dr. Frech did not conduct any analysis in an attempt to quantify the snowball effect that would have resulted from any particular finding as to liability. He merely made general reference to the snowball effect, and asserted that no matter what findings the jury makes as to Simon's liability, the snowball effect would fill in the difference such that the total damages would equal the same amount regardless of whether Simon coerced one retailer or eight retailers. He did not analyze how the snowball effect might have played out in any of those various scenarios, though, such as by examining how many additional tenants Heritage Square might have secured or how much additional rent it could have collected from its existing tenants given any particular finding as to liability.[3] Instead, he essentially asks the jury to take his word for it that the snowball effect is however big it needs to be to result in his damages figure. That sort of analytical gap is unacceptable under Joiner, and cannot be excused merely because this is an antitrust case. Isaksen, 825 F.2d at 1165 (“Post hoc ergo propter hoc is not a valid methodology of damage calculation, especially when it is apparent that other causal factors are at work. . . . We do not allow antitrust plaintiffs or any other plaintiffs to obtain damage awards without proving what compensable damages were actually suffered as a result of the defendant's unlawful conduct.”).

         Dr. Frech also made no effort to test his hypothesis about the snowball effect or to allow the jury to evaluate whether a snowball effect sufficient to produce his damages figures actually materialized in this case. See Daubert, 509 U.S. at 593 (noting that factors that may bear on the reliability of an expert opinion include whether the opinion can be or has been tested, and whether it is falsifiable or refutable). At the very least, Dr. Frech could have worked backwards from his ultimate damages figures to determine how many additional retailers would have had to lease at Heritage Square and how much additional rent Heritage Square would have had to collect from its actual tenants to produce his damages figures. He could then analyze whether those outcomes could have plausibly resulted from any anticompetitive conduct by Simon, and the jury would have a frame of reference to evaluate whether the assumptions necessary to Dr. Frech's opinion actually occurred. Dr. Frech did not offer that sort of analysis, though.

         Dr. Frech also resists any effort to tie the snowball effect or his damages figures to any facts in the case such that his assumptions could be either proven or refuted by any evidence at trial. He asserts that the damages would be the same whether Simon coerced one retailer or eight retailers, as the absence of the coerced retailers would have affected the revenues Heritage Square would have received from other actual or potential tenants. As to those indirectly affected retailers, Dr. Frech likewise asserts that the damages would still be the same regardless of whether there is evidence that any particular retailer was affected in that manner, as some other, unspecified retailers would have leased at Heritage Square in that event. Thus, Dr. Frech has attempted to offer a non-falsifiable opinion, and the jury would have to take it on faith that, whatever the facts show at trial about any retailers' decisions not to lease at Heritage Square or about the rent they would have paid, the direct and indirect effects of any anticompetitive conduct would have produced his same damages figures.

         The snowball effect is not impervious to analysis or quantification, either, as Gumwood suggests, and which it attempts to use as an excuse for this lack of analysis. As Dr. Frech's report notes, the snowball effect translates to damages through two mechanisms: reduced rent from existing tenants, and lost rent from prospective tenants. As Dr. Frech's report also discusses, a major source of reduced rent from Heritage Square's existing tenants was the fact that the cotenancy provisions in those tenants' leases were not met. That allowed those tenants to pay reduced rent based on a percentage of their sales instead of having to pay the higher base rents that would have otherwise applied. For example, Dr. Frech's report notes that, in 2009, Heritage Square's three key, national-retailer tenants collectively paid about half of the base rents in their leases (on which the appraisal based its projections) because their co-tenancy provisions were not met.[4] [Frech Report ¶ 174, Ex. 12]. Those provisions thus had a tangible effect on Heritage Square's revenues, yet Dr. Frech did not evaluate whether any of those co-tenancy provisions would have been met but for Simon's conduct.[5]

         The other component of the snowball effect is lost rent from prospective tenants who did not lease at the center due to the absence of any coerced retailers. The only analysis Dr. Frech offered on that point was in his supplemental report, where he evaluated the relation between Ann Taylor being located at a lifestyle center and the number of key national retailers that locate at a center. Specifically, he identified 159 lifestyle centers across the country, and counted how many retailers out of a list of 12 “key” retailers were located at each center. He determined that lifestyle centers that had Coldwater Creek but not Ann Taylor (as did Heritage Square) had an average of 3.89 out of the 12 key retailers, and that lifestyle centers that had both Coldwater Creek and Ann Taylor had an average of 6.77-a difference of just under three additional retailers, meaning Ann Taylor plus about two more. Dr. Frech never attempted to connect this analysis to his damages opinion, though, nor is it apparent that those numbers could support his figures. Heritage Square's net revenues from Ann Taylor over the span of its ten-year lease would have been about $1 million (at least if its co-tenancy provision had been met, though it was not).[6] Assuming two more retailers would have also leased at Heritage Square at comparable rates, quite a bit more would still have to have happened to reach Dr. Frech's figures of $13 million to $18 million in damages, but Dr. Frech did not offer any explanation to bridge that gap.

         Even if Dr. Frech had adequately traced the harm that Simon's actions inflicted on Heritage Square, he failed to adequately consider and account for other factors that could have caused the reduction in Heritage Square's value. Measuring the harm to Heritage Square through the before-and-after method is made difficult in this case by the fact that Heritage Square was a fledgling enterprise at the time of the challenged conduct, and had no established track record against which the aftermath of the alleged violation could be compared. Dr. Frech thus relied on an appraisal that was completed prior to the challenged conduct, when Heritage Square was still under construction.[7] Under the circumstances, such an appraisal could at least in theory provide an acceptable alternative point of comparison. As Simon stresses, though, the appraisal was just a prediction, and it relied on a number of assumptions as to Heritage Square's likely future performance based on the competitive landscape that existed at the time of the appraisal. Relying on that appraisal as a starting point would have thus called for a consideration of whether those assumptions held true, but Dr. Frech did not conduct such as analysis.[8] Coleman, 525 F.2d at 1352-53 (noting that the “[u]se of projections is entirely acceptable as long as the projections lead to a reasonable estimate of damages caused by the alleged violations, ” but vacating the damages award where the projections on which the experts relied failed to reflect the competitive impact of the defendant's entry into the market).

         That omission is glaring, as there was at least one significant change in the competitive landscape that the appraisal did not predict: Simon built a new lifestyle center at University Park. That new construction added about one hundred twenty-five thousand square feet of vacant, leasable space that would compete directly against Heritage Square, less than a mile away. The appraisal did not account for that impending change, though. While it noted that the Marshall Field's department store at University Park was scheduled to close, the appraisal stated that “[n]o plans have been released about possible tenants for the vacant store area.” [DE 194-7 p. 48]. It did not contemplate that Simon would purchase the Marshall Field's building, demolish it, and construct a new lifestyle center, as opposed to finding another department store to use Marshall Field's existing space, which would not have entailed competing against Heritage Square for tenants.

         By comparison, in surveying other sources of competition, the appraisal did acknowledge a different shopping center (Toscana Park) that was under construction immediately adjacent to Heritage Square, and it indicated that this project was “of special note.” [DE 194-7 p. 53]. The appraisal opined, however, that while this center would compete against Heritage Square due to its proximity, its competitive impact would be blunted because it lacked visibility from the main road and lacked a strong anchor tenant, meaning it was more likely to compete for local, second-tier tenants. The new lifestyle center at University Park, which the appraisal did not acknowledge, was also located near Heritage Square, but had none of those drawbacks. It had excellent visibility from the main roads, was anchored by a super-regional mall, and competed for the same high-end tenants that Heritage Square sought. That new center would have been directly relevant to the appraisal's conclusion that “the market may be undersupplied for well located, anchored, high quality retail space, ” [DE 194-7 p. 53], yet Dr. Frech's report did not address its impact.

         Gumwood argues that Dr. Frech need not account for the increased competition from the new lifestyle center at University Park because Simon did not actually compete lawfully in attempting to lease it. That argument misses the point, though. The jury would not reach the question of damages unless it found that at least some conduct was unlawful. But in awarding damages, a plaintiff is only entitled to be put in the position it would have been in had competition been lawful, not the position it would have been in had competition been absent. Coleman, 525 F.2d at 1352 (holding that a damages model was invalid where it assumed a defendant's absence from the market instead of lawful competition from the defendant); Farley Transp. Co., Inc. v. Santa Fe Trail Transp. Co., 786 F.2d 1342, 1351-52 (8th Cir. 1985); see Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) (holding that damages could not be awarded where, although the plaintiff suffered a loss as a result of unlawful acquisitions, the loss “did not occur ‘by reason of' that which made the acquisitions unlawful”); Areeda ¶ 657b1. It was not unlawful for Simon to construct a new lifestyle center at University Park, nor would it have been unlawful for Simon to compete vigorously against Heritage Square for retailers to lease at that new space. Thus, the “but-for world” does not assume no competition from Simon, it assumes lawful competition from Simon in building and attempting to lease out the lifestyle center at University Park. A valid damages model must therefore account for those factors. Marshfield Clinic, 152 F.3d at 593 (“Statistical studies that fail to correct for salient factors, not attributable to the defendant's misconduct, that may have caused the harm of which the plaintiff is complaining do not provide a rational basis for a judgment.”); Schiller & Schmidt, Inc. v. ...

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