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Zimmer Inc. v. Stryker Corp.

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

July 3, 2018

ZIMMER, INC., Plaintiff,



         Now 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.


         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). 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).


         Zimmer 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 year”).

         Katz's 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.

         Based 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.

         Katz 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”).[1] 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.

         Starting 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.

         In 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 post-non-compete periods to reach $3, 601, 696 (one year), $5, 632, 123 (three years), and $7, 501, 758 (five years).[2] Id. at 39-42.

         A. Katz Confuses ...

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