United States District Court, N.D. Indiana, South Bend Division
MEMORANDUM OPINION AND ORDER
DEGUILIO JUDGE UNITED STATES DISTRICT COURT
before the Court are, among other pretrial items, two motions
related to damages in this case between plaintiff Zimmer,
Inc. and defendants Stryker Corporation, Howmedica Osteonics
Corp. d/b/a Stryker Orthopedics, and Cody Stovall. Zimmer
asserts claims for breach of contract and fiduciary duty,
unfair competition, and tortious interference with contracts
and business relationships. The underlying facts have been
set forth at length in prior orders, and the Court assumes
familiarity with those orders. Zimmer and Defendants have
each filed a Daubert motion seeking to exclude or
narrow the expert damages opinions offered by the opposing
party. For the following reasons, the Court will grant
Defendants' motion to exclude the damages opinions of
Zimmer's expert. The Court will consequentially deny as
moot Zimmer's motion to exclude portions of
Defendants' expert's report and testimony.
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
(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). And as always in the Rule
702 analysis, the Court is free to consider concerns specific
to the facts of the case at hand. United States v.
Scott, No. 3:11-CR-104, 2013 WL 252247, at *8 (N.D. Ind.
Jan. 23, 2013). The expert's proponent bears the burden
of proving by a preponderance of the evidence that the
testimony satisfies Rule 702. See Lewis v. CITGO
Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009).
asked its expert, Jeffrey Katz, to “assess, among other
things, the amount of Zimmer lost profits, if any, which
resulted from Stovall's and other former Zimmer sales
representatives' breaches of their various agreements as
well as from Stryker's actions which induced those former
Zimmer employees to breach their agreements with
Zimmer.” [Katz Report at 1] To calculate lost profits,
Katz used both the “before-and-after”
methodology, which examines a plaintiff's past profits in
estimating its future profits, and the
“yardstick” methodology, which examines the
profits of closely comparable businesses in estimating a
plaintiff's future profits. See Park v. El Paso Bd.
of Realtors, 764 F.2d 1053, 1068 (5th Cir. 1985). When
an expert uses either or both methodologies, “[h]is
assumptions and projections must rest on ‘adequate
bases, ' and cannot be the product of mere
speculation.” Park, 764 F.2d at 1067 (internal
quotation marks omitted); see also United States v.
Brown, 7 F.3d 638, 652-53 (7th Cir. 1993) (“expert
testimony [must] be rejected if it lacks an adequate basis in
fact”). Accordingly, if the “principal
assumptions” underlying Katz's opinions lack the
reliability expected by experts in the field, his lost
profits calculations do not satisfy Rule 702. Park,
764 F.2d at 1067; see also Junk v. Terminix Int'l
Corp., 628 F.3d 439, No. 08-3811, 2010 WL 4978801, at *7
(8th Cir. Dec. 9, 2010) (affirming exclusion of expert
testimony due, in part, to expert's “reliance on
unfounded assumption in his comparative method”);
Universal Church v. Geltzer, 463 F.3d 218, 226 (2d
Cir. 2006) (reversing admission of expert testimony due, in
part, to expert's unjustified assumption that
debtor's “expenses were essentially the same each
determinations of lost revenues form the bases of his lost
profits calculations. [Katz Report at 14-19] Relating to
Zimmer's lost revenues from Drs. North and Risko after
Stovall resigned, Katz examined the monthly sales data from
those two doctors for both one year prior to and one year
after Stovall's resignation. Id. at 21-22. Katz
formed the basic assumption that “Stovall's
pre-resignation actions, Stovall's alleged breach of the
Agreement and Stryker's alleged inducement” caused
the decline in sales to Drs. North and Risko. Id.
With that in mind, Katz used the before-and-after method to
calculate the sales he believed Zimmer would have earned
during Stovall's non-compete period “but for
[Stovall's] wrongdoing.” Id. at 22. To
reach that lost revenues figure for these two doctors in
Amarillo, Texas, Katz calculated Zimmer's expected
profits based on Zimmer's growth rates for the Americas
listed in its 10K. Id. Katz then took the difference
between the resulting expected revenues and actual revenues
Zimmer earned during the non-compete period ($1, 723, 760).
Id. at 22-23.
on the same causation assumptions, Katz also determined lost
revenues related to Stovall using the yardstick method.
Id. at 23. To do so, Katz first determined an
expected growth rate for Stryker by computing Stryker's
actual sales to Drs. North and Risko during the twelve months
prior to the non-compete period and multiplying those sales
by Stryker's national growth rates. Id.
According to Katz, the resulting figure represents
Stryker's expected revenues “had the wrongdoing not
occurred.” Id. Katz then compared these
expected revenues to Stryker's actual revenues from Drs.
North and Risko from the non-compete period; the excess of
Stryker's actual revenues for these two doctors above its
expected revenues served as Katz's benchmark for the
sales Zimmer would have had “but for the alleged
wrongdoing” during Stovall's non-compete period
($2, 247, 332). Id.
utilized the same process to determine lost revenues from
Drs. Jennings and Ridgeway in South Carolina after the
departure of Cameron Dickerson, Jay Barnhardt, and
Christopher Terrell (the “Dickerson
team”). Id. at 30-33. Katz again reviewed
sales data for those two doctors and assumed that the decline
in sales stemmed from the Dickerson team's
“wrongdoing, ” with an exception for Zimmer's
lost hip products sales to Dr. Ridgeway. Id. at 30.
Based on this assumption, Katz employed the before-and-after
and the yardstick methods to settle on lost revenue amounts
($2, 556, 964 and $3, 224, 698, respectively) for Zimmer
during the Dickerson team's non-compete period.
Id. at 31-33.
with the lost revenues he determined corresponding to
Stovall's and the Dickerson team's non-compete
periods, and then applying the same growth rates along with a
50% business retention rate, Katz also calculated lost
revenue amounts at the one-, three-, and five-year marks
subsequent to the various non-compete periods. Id.
at 16-19, 24-29, 33-38. Katz determined these extended lost
revenues using both the before-and-after and yardstick
methods. See id.
closing, Katz added the losses associated with Stovall to
those of the Dickerson team, averaged his findings under the
before-and-after and yardstick approaches, adjusted for
incremental costs of revenue and discounts, and opined that
Zimmer incurred $2, 493, 364 in lost profits during the
non-compete period as a result of the alleged wrongdoing in
this case. He also added that figure to the average lost
profit amounts from the ...