Clear-View Technologies, Inc., v. Rasnick et al
Filing
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ORDER by Judge Beth Labson Freeman DENYING 170 Defendants' motion to strike and exclude the testimony of Plaintiff's Expert Dr. Jonathan Neuberger. (blflc3S, COURT STAFF) (Filed on 6/2/2015)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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CLEAR-VIEW TECHNOLOGIES, INC.,
Case No. 13-cv-02744-BLF
Plaintiff,
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v.
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JOHN H. RASNICK, et al.,
Defendants.
[Re: ECF 160, 170]
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United States District Court
Northern District of California
ORDER DENYING DEFENDANTS'
MOTION TO EXCLUDE THE EXPERT
TESTIMONY OF DR. JONATHAN
NEUBERGER
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On May 28, 2015, the Court heard oral argument on Defendants’ motion to exclude the
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testimony and expert report of Plaintiff’s proposed expert, Dr. Jonathan Neuberger, which values
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Plaintiff CVT, as of June 17, 2011, at $88.7 million. See Neuberger Report, ECF 153-4 at ¶ 36.
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For the reasons below, the Court DENIES the motion.
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I.
LEGAL STANDARD
Federal Rule of Evidence 702 provides that a qualified expert may testify at trial if “(a) the
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expert's scientific, technical, or other specialized knowledge will help the trier of fact to
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understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient
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facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert
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has reliably applied the principles and methods to the facts of the case.” Fed. R. Evid. 702. In
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Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993), the Supreme Court held
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that Rule 702 requires the district court to act as a gatekeeper to “ensure that any and all scientific
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testimony or evidence admitted is not only relevant, but reliable.” In Kumho Tire Co., Ltd. v.
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Carmichael, the Supreme Court clarified that this gatekeeping obligation applies not only to
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scientific testimony but to all expert testimony. 526 U.S. 137, 147 (1999).
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In making its findings, the district court must address the soundness of the expert's
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methodology, not the correctness of his or her conclusions. See Estate of Barabin v. AstenJohnson,
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Inc., 740 F.3d, 457, 463 (9th Cir. 2014). The district court’s duty is to “exclude junk science that
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does not meet Federal Rule of Evidence 702's reliability standards.” Id. (internal quotation marks
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and citation omitted). The district court must take care not to act as a fact finder, see Primiano v.
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Cook, 598 F.3d 558, 564-65 (9th Cir. 2010) (“[T]he district judge is a gatekeeper, not a fact
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finder.”), because the Court’s “role as a gatekeeper is not designed to serve as a replacement for
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the adversary system.” Fed. R. Evid. 702, 2000 Adv. Comm. Notes. “When an expert meets the
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threshold established by Rule 702 as explained in Daubert, the expert may testify and the jury
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decides how much weight to give that testimony.” Id. at 565.
II.
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DISCUSSION
United States District Court
Northern District of California
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Defendants do not challenge Dr. Neuberger’s credentials or qualifications; rather,
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Defendants argue that the assumptions on which Dr. Neuberger bases his opinions are so
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speculative as to be unreliable, and thus inadmissible under Daubert and Rule 702.1
To reach his valuation of CVT, Dr. Neuberger examined CVT’s business plans, financial
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statements, and financial projections produced by the company prior to June 2011, including a
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report from a third-party valuation firm called Cronkite & Kissel. See Neuberger Report ¶ 25; see
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also Neuberger Supp. Decl., ECF 176-8 at ¶ 14.2 To render sales projections for CVT’s product
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The BarMaster, which serve as the backbone for his valuation estimate of the company, Dr.
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Neuberger made several assumptions: first, he assumed that CVT would “book no revenue” in
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2011, and that its sales in 2012 would be limited to only “those customers that had placed
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preliminary orders at the March 2011 Las Vegas Nightclub and Bar trade show.” Id. at ¶ 26. Then,
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“assuming the enormous size of the potential market identified by CVT’s market research,” Dr.
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Neuberger projected sales of The BarMaster to increase over the first five years to make up five
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A district court has “broad latitude to determine the appropriate form of the [Daubert] inquiry.”
Barabin at 463. Though pretrial Daubert hearings are commonly used, they are not required. See
id. Here, neither party requested a Daubert hearing. The Court therefore bases its decision on this
motion on the written record and counsel’s oral argument.
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Defendants moved in limine to exclude this supplemental declaration, which the Court denied.
See ECF 214 at 7-8.
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percent of CVT’s target market, with one percent yearly annual revenue growth thereafter. See id.
Defendants’ motion asserts that these assumptions, specifically that all the 2011 non-
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binding orders placed at the Las Vegas trade show would materialize into binding sales, are so
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wildly speculative, so “pie-in-the-sky,” as to render Dr. Neuberger’s opinions unreliable. See
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Defs.’ Mot., ECF 170 at 18-19.
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District courts across the country have repeatedly held that an economic expert may be
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excluded from testifying under Daubert when the “expert’s testimony rests on faulty
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assumptions.” See, e.g., Total Containment, Inc. v. Dayco Prods., Inc., 2001 WL 1167506, at *4
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(E.D. Pa. Sept. 6, 2001) (“Nothing requires a court to accept an opinion tied to existing data only
through an expert’s ‘ipse dixit.’”); see also Fail-Safe LLC v. A.O. Smith Corp., 744 F. Supp. 2d
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United States District Court
Northern District of California
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870, 876-82 (E.D. Wisc. 2010) (“There is a fine line between a court finding that proffered expert
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testimony is ‘unpersuasive’ (and capable of being submitted to a jury) and when a court concludes
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that evidence is wholly ‘unreliable’ (and properly excludable under Daubert).”). This is because
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district courts, in general, “should avoid passing judgment on the ‘factual underpinnings of the
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expert’s analysis and the correctness of the expert’s conclusions.” Tucker v. SmithKline Beecham
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Corp., 701 F. Supp. 2d 1040, 1055 (S.D. Ind. 2010). Instead, “[v]igorous cross-examination,
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presentation of contrary evidence, and careful instruction on the burden of proof are the traditional
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and appropriate means of attacking shaky but admissible evidence.” Id.
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For the reasons below, the Court finds that although Defendants’ motion identifies a
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number of ways in which Dr. Neuberger could be cross-examined by Defendants, Defendants
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have not shown that his opinions are so “unreliable” as to necessitate exclusion under Rule 702.
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Dr. Neuberger’s opinion of CVT’s future sales projections, the sales orders placed at the
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2011 Las Vegas trade show, relies on specific expressions of interest made by third parties
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regarding purchasing The BarMaster. These numbers are not made up out of whole cloth, but
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rather are based on clear indicia of demand for the product. Though these 2011 orders were non-
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binding, and a factfinder may find unpersuasive the assumption that all of these orders would
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manifest into binding sales, Dr. Neuberger’s foundation is not so unreliable as to be inadmissible.
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This is distinguishable from the expert report excluded in Fail-Safe, on which Defendants heavily
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rely. In that case, the expert based his sales projections on a single PowerPoint slide statement,
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made by his client, that the “company hoped to have 350k . . . Target Units as the starting point for
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how many [units] would be on the market in the first year and a half.” 744 F. Supp. 2d at 887-88
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(emphasis added). Here, Dr. Neuberger used as his baseline actual expressions of interest from
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possible purchasers of The BarMaster, not mere expressions of corporate hope. Defendants may
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cross-examine Dr. Neuberger as to his presumption that all of those non-binding orders would
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manifest into sales, but they may not exclude his report on this ground.
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The remaining challenges Defendants make to Dr. Neuberger’s assumptions fare no better.
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Defendants assert that Dr. Neuberger improperly assumed that The BarMaster could be completed,
that CVT would implement a business plan to bring its product to market, and that CVT could
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United States District Court
Northern District of California
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develop a “more efficient” version of The BarMaster. See Defs.’ Mot. at 13, 18. Defendants claim
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that these assumptions are untenable because CVT did not have a working version of The
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BarMaster as of June 17, 2011 – the date on which Dr. Neuberger valued the company to be worth
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$88.7 million. Whether The BarMaster worked, however, is a factual dispute in this litigation –
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Plaintiff in fact contends that it successfully installed The BarMaster at a Roanoke, Virginia
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establishment called 202 Market. Pl.’s Opp., ECF 176 at 13. As the Advisory Committee Notes to
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Rule 702 make clear, it is improper for the Court to exclude an expert’s testimony based on “the
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ground that the court believes one version of the facts and not the other.” None of these three
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grounds meet the high bar to exclude expert testimony based on faulty assumptions.
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Defendants also take issue with Dr. Neuberger’s assumptions that there was a “massive
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market” for The BarMaster, and that CVT would make international sales of the product. See
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Defs.’ Mot. at 15-18. Dr. Neuberger, however, provides support for these assumptions in his
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expert report through his analysis of CVT’s market competitors and studies of the domestic and
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international market for The BarMaster. See Neuberger Report ¶¶ 27-29. Though Dr. Neuberger
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posits that CVT would become a market leader in its industry through sales of The BarMaster, he
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has supported these assumptions with sufficient data.
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Finally, Defendants challenge Dr. Neuberger’s assumption that CVT is presently valuable.
Defs.’ Mot. at 18. Dr. Neuberger assumes that the outstanding 60 million shares of the company,
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which has not been dissolved, would be “potentially valuable if the company is able to restart its
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operations.” Neuberger Report at ¶ 41. He gives each stock the nominal value of $0.01, which puts
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the present value of the company at $600,000. Id. Defendants contend that this means “an
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individual can start a company, arbitrarily choose the number of 100 million shares of stock, and
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Neuberger’s methodology would value that entity at $1 million.” Defs.’ Mot. at 18. Defendants,
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however, point to no evidence that the number of outstanding shares is arbitrary, and Dr.
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Neuberger states that CVT is “potentially valuable” were it able to restart operations. Defendants
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may cross-examine Dr. Neuberger on this point, but have not shown that it is so speculative as to
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be unreliable.
Defendants make one additional argument that the Court briefly addresses here.
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United States District Court
Northern District of California
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Defendants claim that Dr. Neuberger did not independently verify the information provided to him
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by CVT, and that an economic expert can only rely on data provided by the client when the expert
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engages in such independent verification. Defs.’ Mot. at 19. Dr. Neuberger provided the Court
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with a supplemental declaration, ECF 176-8, in which he declares that he considered not only
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materials produced by CVT, but also third party analyses, including one performed by valuation
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firm Cronkite & Kissel, in reaching his valuation. Id. at ¶ 14. Though Defendants are correct that
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an expert may not rely merely on the self-serving projections of his client, see, e.g., Zenith Elecs.
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Corp. v. WH-TV Broadcasting Corp., 395 F.3d 416, 420 (7th Cir. 2005), the Court finds that Dr.
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Neuberger did not rest his valuation on CVT’s mere “say-so,” but rather engaged in his own
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independent analysis of this data, consistent with his obligations as an expert under Rule 702 and
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Daubert.
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III.
ORDER
For the foregoing reasons, Defendants’ motion to exclude the expert report and testimony
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of Dr. Jonathan Neuberger is DENIED.
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IT IS SO ORDERED.
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Dated: June 2, 2015
______________________________________
BETH LABSON FREEMAN
United States District Judge
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