CrossFit Incorporated v. Martin et al

Filing 272

ORDER: IT IS ORDERED denying 230 Plaintiff CrossFit, Inc.'s Motion to Exclude Opinions and Testimony of Carl Saba. (See attached Order for complete details). Signed by Judge John J Tuchi on 8/3/17.(JAMA)

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NOT FOR PUBLICATION

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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CrossFit Incorporated,
Plaintiff,

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Jeff Martin, et al.,

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ORDER

v.

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No. CV-14-02277-PHX-JJT

Defendants.
Jeff Martin, Mikki Lee Martin, Brand X
Martial Arts, and CrossFit Brand X, Inc.

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Counterclaimants,
v.
CrossFit, Inc. and Greg Glassman,
Counterdefendants.

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At issue is Plaintiff CrossFit, Inc.’s (“CrossFit” or “Plaintiff”) Motion to Exclude

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Opinions and Testimony of Carl Saba (Doc. 230, Mot.), to which Defendants and

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Counterclaimants Jeff Martin, Mikki Lee Martin, Brand X Martial Arts, and CrossFit

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Brand X, Inc. (“the Martins” or “Defendants”) filed a Response (Doc. 245, Resp.), and

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Plaintiff filed a Reply (Doc. 256, Reply). The Court has reviewed the parties’ briefs and

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finds this matter appropriate for decision without oral argument. See LRCiv 7.2(f).

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I.

LEGAL STANDARD

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Rule 702 of the Federal Rules of Evidence tasks the trial court with ensuring that

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any expert testimony provided is relevant and reliable. Daubert v. Merrell Dow Pharm.,

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Inc. (Daubert), 509 U.S. 579, 589 (1999). “Evidence is relevant if it has any tendency to

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make a fact more or less probable than it would be without the evidence and the fact is of

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consequence in determining the action.” Fed. R. Evid. 401. The trial court must first

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assess whether the testimony is valid and whether the reasoning or methodology can

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properly be applied to the facts in issue. Daubert, 509 U.S. at 592-93. Factors to consider

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in this assessment include: whether the methodology can be tested; whether the

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methodology has been subjected to peer review; whether the methodology has a known

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or potential rate of error; and whether the methodology has been generally accepted

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within the relevant professional community. Id. at 593-94. “The inquiry envisioned by

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Rule 702” is “a flexible one.” Id. at 594. “The focus . . . must be solely on principles and

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methodology, not on the conclusions that they generate.” Id.

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The Daubert analysis is applicable to testimony concerning non-scientific areas of

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specialized knowledge. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999). A

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qualified expert may testify in the form of opinion if their experiential knowledge will

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help the trier of fact to understand evidence or determine a fact in issue, as long as the

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testimony is based on sufficient data, is the product of reliable principles, and the expert

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has reliably applied the principles to the facts of the case. See Fed. R. Evid. 702; Daubert,

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509 U.S. 579 (1999). The advisory committee notes on the 2000 amendments to Rule 702

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explain that Rule 702 (as amended in response to Daubert) “is not intended to provide an

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excuse for an automatic challenge to the testimony of every expert.” See Kumho, 526

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U.S. at 152. “Vigorous cross-examination, presentation of contrary evidence, and careful

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instruction on the burden of proof are the traditional and appropriate means of attacking

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shaky but admissible evidence.” Daubert, 509 U.S. at 595 (citation omitted).

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II.

ANALYSIS

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Plaintiff moves to exclude the testimony of the Martins’ expert, Carl Saba,

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because it does not “fit” the remaining counterclaims against CrossFit and

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Counterdefendant Greg Glassman, Mr. Saba is not qualified to offer the opinions he

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provides, Mr. Saba’s opinion is based on insufficient and unreliable data and false

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assumptions, and Mr. Saba failed to use reliable valuation principles and methods in

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formulating his opinion. (Mot. at 3, 5, 7, 9, 12.) Defendants contend that Mr. Saba’s

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opinion fits the remaining counterclaims because his damage analysis focuses on a single

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harm on which all remaining counterclaims are based, that he is eminently qualified to

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provide his opinion, that the inconsistences and false assumptions Mr. Saba relied on in

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his report do not warrant exclusion of his report, and that Mr. Saba applied reliable

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valuation principles and methods to the facts of the case. (Resp. at 3, 5, 7, 9, 12.)

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A.

Apportionment of Damages by Counterclaim and Party

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Plaintiff claims that Mr. Saba’s analysis should be excluded because Mr. Saba did

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not calculate damages for any of the Martins’ remaining counterclaims. (Mot. at 3;

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Reply at 1.) Specifically, Plaintiff argues that Mr. Saba’s damages calculations generally

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relate only to the 2011 Transition Agreement and to the tortious interference

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counterclaims. (Mot. at 3.) Plaintiff further claims that Mr. Saba’s report should be

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excluded because Mr. Saba did not apportion the damages by party. (Mot. at 4;

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Reply at 2.) Plaintiff contends that because it is a corporation, and not a sole

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proprietorship, the damages element for each counterclaim cannot apply equally to

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Mr. Glassman and CrossFit (Reply at 2.) Thus, Plaintiff argues that Mr. Saba’s report

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would mislead the jury “into believing that a full business valuation of a hypothetical

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company should be awarded in connection with all of the Martins’ counterclaims . . . .”

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(Reply at 3.)

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The Martins claim that Mr. Saba was not required to apportion damages by

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counterclaim and that each of the Martins’ counterclaims deal with the same harm—“the

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wrestling of control of CrossFit Kids away from the Martins.” (Resp. at 4.) Defendants

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contend that apportioning damages between CrossFit and Mr. Glassman for each

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counterclaim would be futile because the damages are overlapping, making

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apportionment in this instance duplicative. (Resp. at 4.) Defendants further claim that

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apportioning damages between parties is unnecessary because Mr. Glassman and

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CrossFit are “one in the same . . . the culpable actions of one are indistinguishable from

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the other, since both actively participated in taking control of CrossFit Kids from the

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Martins and Glassman is CrossFit’s sole shareholder.” (Resp. at 4.)

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The Court agrees with Plaintiff that Mr. Glassman and CrossFit are not “one in the

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same,” and that damages claims against CrossFit cannot apply equally to Mr. Glassman.

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See Employer’s Liability Assur. Corp. v. Lunt, 313 P.2d 393, 395-96 (Ariz. 1957).

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However, the Court disagrees with Plaintiff’s assertion that Mr. Saba’s failure to

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apportion damages between CrossFit and Mr. Glassman warrants exclusion of his

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opinion. Plaintiff provides the Court with no Ninth Circuit authority requiring an expert

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to apportion damages by claim or party. Plaintiff cites Enovsys LLC v. AT&T Mobility

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LLC, No. CV 11-5210 SS, 2015 WL 10383057 at *5 (C.D. Cal. Aug. 10, 2015) in

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support of this argument. (Reply at 2.) However, Enovsys dealt with expert opinion

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regarding damages for patent infringement. Id. There, the court relied on both Ninth

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Circuit and Federal Circuit case law dealing specifically with patent infringement and

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calculations of a reasonable royalty based on the value of patented and non-patented

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components of an allegedly infringing product. Id. The Court is not persuaded that the

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apportionment of damages analysis in the context of patent infringement is applicable or

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helpful in this matter.

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Plaintiff also relies on Oracle American, Inc. v. Google Inc. in support of its

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argument. 847 F. Supp. 2d 1178, 1187 (N.D. Cal. 2012). Though Oracle American lends

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more support for Plaintiff’s contention, the Court is still not persuaded that Mr. Saba was

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required to apportion damages by counterclaim. In Oracle American, an expert failed to

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apportion copyright damages for two separate copyrighted materials. Id. The expert’s

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analysis of damages focused almost entirely on one of the copyrighted materials. Id. The

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court held that if the defendant was not found liable for infringing the copyrighted

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material that the expert’s analysis relied on the most, then the expert’s opinion would be

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inapplicable. Id. Unlike the separate copyrighted materials in Oracle American, the harm

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in this case, and therefore any resulting damages, is substantially related to the same set

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of operative facts—the Martins no longer having control over CrossFit Kids.

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Plaintiff will have an opportunity to question Mr. Saba as to how his damages

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calculations should be apportioned by counterclaim during cross-examination. The Court

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is confident that a jury can apportion damages between the parties if CrossFit or

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Mr. Glassman is found liable for either or both of the remaining counterclaims that are

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alleged against both parties. Mr. Saba’s failure to apportion damages by claim or party

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does not demonstrate a lack of reliability that would warrant exclusion of his opinion

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under the Daubert standard.

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B.

Mr. Saba’s Qualifications

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Plaintiff claims that Mr. Saba is not qualified to offer expert opinions on damages

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because he is not a certified public accountant (“CPA”), does not have a degree in

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accounting, and by his own admission, is not qualified to create income statements for the

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relevant time period in 2015. (Mot. at 5.) Defendants respond that as a credentialed

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business valuation expert, Mr. Saba is qualified to provide his expert opinions in this case

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(Resp. at 5.) Defendants reference Mr. Saba’s curriculum vitae (“CV”) in support of this

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proposition. (Resp. at 5-6.) Defendants also claim that Mr. Saba was qualified to estimate

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revenues for 2015, and that applying growth rates to project future earnings is within his

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area of expertise. (Resp. at 6.)

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The Court has reviewed Mr. Saba’s CV and finds that he is qualified to offer

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expert opinion on this matter. The Court further finds that the accuracy with which

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Mr. Saba could project the Martins’ future earnings is not a question for the Court at this

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stage in litigation, but rather is a question for the jury. “Vigorous cross-examination” and

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“presentation of contrary evidence” during trial is the appropriate method for such a

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determination. See Daubert, 509 U.S. at 595. Plaintiff has not persuaded the Court that

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Mr. Saba relied on any unreliable data in calculating the lost future earnings. The Court

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therefore finds that Mr. Saba’s calculation of future earnings does not entail the

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unreliability that would warrant exclusion of his opinion under the Daubert standard.

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C.

Sufficiency of the Facts and Data on which Mr. Saba Relied
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Assumption that the Martins had a 100% Interest in CrossFit
Kids

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Plaintiff claims that Mr. Saba’s opinion is flawed and should be excluded because

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he formulated his calculations on the assumption that the Martins had a 100% interest in

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CrossFit Kids. (Mot. at 6; Reply at 4.) Mr. Saba acknowledged that the Martins only had

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an 80% share of CrossFit Kids seminar revenues and that the estimated damages would

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need to be decreased to reflect the 20% difference in interest. (Mot. at 6-7.) Defendants

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claim that the 20% difference involves only the input of a single figure into a damages

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calculation, and that the implications can easily be determined and explained, making

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exclusion of Mr. Saba’s entire report on this basis alone unnecessary. (Resp. at 9.) The

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Court agrees with Defendants that Mr. Saba’s reliance on the assumption that the Martins

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had a 100% interest in CrossFit Kids does not indicate use of unreliable data. Any

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necessary decreases in estimated damages can be addressed at trial during direct and

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cross-examination, and exclusion of Mr. Saba’s opinion for this reason is not required.
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Assumption that Martins Incurred all Costs Associated with
CrossFit Kids

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Plaintiff next claims that Mr. Saba’s opinion is flawed and should be excluded

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because he formulated his calculations on the assumption that the Martins incurred all of

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the costs relating to the CrossFit Kids business. (Mot. at 7; Reply at 4.) Mr. Saba

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acknowledged that the estimated damages would need to be reduced to reflect that not all

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of the costs were paid by the Martins. (Mot. at 7.) Defendants do not specifically address

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this claim in their Response, but the Court finds that, similar to the assumption that the

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Martins had a 100% interest in the CrossFit Kids business, any discrepancies in the

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estimated damages can be properly addressed at trial during direct and cross-examination.

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The Court therefore finds that exclusion of Mr. Saba’s opinion for this reason is not

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required.

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3.

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Assumption Regarding CrossFit Affiliates Operating a CrossFit
Kids Program

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Plaintiff claims that Mr. Saba’s opinion is flawed and should be excluded because

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he formulated his calculations on the assumption that all CrossFit affiliates that operated

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a CrossFit Kids Program while it was free would continue to do so once the Martins

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charged a $500 annual fee. (Mot. at 8; Reply at 4.) Plaintiff claims that by relying on this

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assumption, Mr. Saba rested his opinion on speculative estimates that do not meet the

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Daubert standard. Defendants contend that Mr. Saba’s assumption was sound because

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during the relevant time period, those affiliates were charged $1,000-$3,000 more than

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they were charged while the Martins were operating the CrossFit Kids program.

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(Resp. at 8.) Again, the Court finds that the disagreement as to whether this assumption is

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sound is a matter more appropriate for “[v]igorous cross-examination” and “presentation

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of contrary evidence” during trial. See Daubert, 509 U.S. at 595. Whether Mr. Saba was

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correct in assuming that the CrossFit affiliates would continue to operate a CrossFit Kids

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program does not raise an issue of whether his analysis used unreliable facts or data. The

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Court therefore finds that this assumption does not warrant exclusion of Mr. Saba’s

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opinion.

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4.

Assumption that CrossFit Kids was a Sole Proprietorship

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Plaintiff claims that that Mr. Saba’s opinion is unreliable and should be excluded

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because he based his calculations on the assumption that CrossFit Kids was a sole

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proprietorship. (Mot. at 9.) Plaintiff contends that because CrossFit Kids was actually a

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non-profit organization, calculating any lost profits for the program is inaccurate.

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(Mot. at 9.) Defendants claim that Mr. Saba’s assumption was sound because CrossFit

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had been operated as a sole proprietorship until 2010, and had the Martins retained

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control of the program, its status could have been changed to fit their preferences.

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(Resp. at 8.) The soundness of Mr. Saba’s assumption that CrossFit Kids could have been

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operated as a sole proprietorship during the relevant time period is an issue for the jury to

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determine, not the Court. The assumption that CrossFit Kids could have been operated as

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a sole proprietorship does not point to the use of any unreliable data or figures in his

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analysis and does not warrant exclusion of Mr. Saba’s opinion.

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5.

Reliance on the Martins’ Unsupported Estimates

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Plaintiff next claims that Mr. Saba’s opinion is unreliable and should be excluded

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because he used unsupported estimates provided by the Martins to calculate damages.

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(Mot. at 9.) Plaintiff claims that the Martins’ estimates were completed by the Martins in

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preparation for trial, were inconsistent with the Martins’ tax returns and bank statements,

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and that Mr. Saba cannot testify as to the accuracy of the estimates. (Mot. at 9-10.)

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Defendants claim that Mr. Saba reconciled the figures the Martins offered with their tax

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returns when possible, giving more weight to the figures in the tax returns, and any

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inconsistencies between the Martins’ estimates and their tax returns were remedied

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because Mr. Saba used the revenue figures derived from CrossFit’s interrogatory

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responses in his calculations. (Resp. at 10.)

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Plaintiff also claims that Mr. Saba was unsure whether the figures the Martins

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provided him were apportioned between the Martins’ businesses and that Mr. Saba relied

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on outdated interrogatory responses that CrossFit later amended. (Mot. at 11.) Defendants

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contend that it was reasonable for Mr. Saba to assume the figures the Martins provided

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him related only to CrossFit Kids and that Mr. Saba did not rely on any bank statements

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that listed Brand X as the account holder. (Resp. at 10.) Defendants also argue that

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Plaintiff served the amended interrogatory responses on the day that Mr. Saba’s amended

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report was due and that its failure to ask Mr. Saba whether he would have adjusted his

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analysis in light of the amended responses during his deposition should prevent it from

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raising that issue now. (Resp. at 11.)

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Again, the Court finds that these issues are being raised prematurely. Plaintiff

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claims that the figures Mr. Saba used are unreliable, while Defendants argue that they are

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reliable. Without any substantial authority that would deem Mr. Saba’s use of the figures

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and estimates provided by the Martins unreliable and potentially misleading, these issues

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are more appropriate for the jury to determine. None of Plaintiff’s claims persuade the

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Court that Mr. Saba relied on unreliable figures that would mislead a jury, and the Court

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finds nothing requiring exclusion of Mr. Saba’s opinion based on these claims.

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D.

Alleged Failure to Use Reliable Principles and Methods

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Plaintiff finally claims that Mr. Saba’s report should be excluded because he failed

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to use reliable principles and methods and failed to reliably apply them to the facts of the

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case. (Mot. at 14.) Plaintiff claims that Mr. Saba did not follow the American Institute of

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Certified Public Accountants (“AICPA”) guidelines because he failed to exercise the

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required degree of skepticism, improperly credited the Martins for expenses they did not

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incur, and failed to properly account for the Martins’ employee benefits and salaries.

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(Mot. at 14-17.) Plaintiff also claims that Mr. Saba’s proposed supplemental report

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demonstrates that his analysis was flawed. (See Doc. 212, Motion to Permit Supplemental

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Expert Report.)

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Defendants claim that Mr. Saba’s supplemental report addresses the issue

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regarding the treatment of the Martins’ employee benefits and salaries (Resp. at 14), and

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that Plaintiff has confused AICPA standards for financial auditing with those of preparing

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a business valuation (Resp. at 13). Although the Court has denied Defendants’ Motion to

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Supplement Mr. Saba’s report (See Doc. 271), the Court does not agree with Plaintiff’s

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assertion that the proposed supplemental report indicates an analysis so flawed that it is

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necessarily unreliable or potentially misleading to a jury. Therefore, the Court finds no

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reason to exclude Mr. Saba’s opinion for an alleged failure to use reliable principles and

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methods and reliably apply them to the facts of the case.

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IT IS THEREFORE ORDERED denying Plaintiff CrossFit, Inc.’s Motion to
Exclude Opinions and Testimony of Carl Saba (Doc. 230).
Dated this 3rd day of August, 2017.

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Honorable John J. Tuchi
United States District Judge

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