Allstate Sweeping, LLC v. City and County of Denver et al

Filing 185

ORDER granting in part and denying in part 148 Defendants Joint Motion to Determine Admissibility of Plaintiffs Proffered Expert Testimony by Judge William J. Martinez on 6/2/2011.(erv, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 10-cv-00290-WJM-MJW
ALLSTATE SWEEPING, LLC,
Plaintiff,
v.
CITY AND COUNTY OF DENVER,
DENVER DEPARTMENT OF AVIATION,
APRIL HENDERSON,
CALVIN BLACK,
STEVE DRAPER, and
RUTH RODRIGUEZ,
Defendants.

ORDER ON MOTION TO DETERMINE ADMISSIBILITY

THIS MATTER comes before the Court on Defendants’ Joint Motion to
Determine Admissibility of Plaintiff’s Proffered Expert Testimony (“Motion”) pursuant to
Rule 702 of the Federal Rules of Evidence. (ECF No. 148.) The Motion is fully briefed,
and the Court held an evidentiary hearing on the Motion on May 17, 2011. For the
reasons below, the Motion is GRANTED in part and DENIED in part.
I.

BACKGROUND
Plaintiff Allstate Sweeping, LLC (“Allstate”) had a contract with the City and

County of Denver (“City”) to perform pressure washing services at Denver International
Airport (“DIA”) through a purchase order and subsequent contract. The contract was
signed on June 6, 2006, and covered a 27-month term beginning May 1, 2006.
(Contract at 4, § 3.01, ECF No. 148-1.) The contract was worth up to $1.2 million,

though the City had only authorized partial funding in the amount of $350,000 at the
signing of the contract. (Id. at § 4.03.) The contract could be extended for two one-year
periods with written consent of the City. (Id. at § 3.01.) However, the maximum
contract amount was to remain at $1.2 million with the inclusion of the two one-year
extensions unless otherwise authorized. (Id. )
Following disputes between Allstate and supervisors at DIA, the City terminated
Allstate’s contract effective July 1, 2007. (Amend. Compl. at ¶ 34, ECF No. 124.)
Plaintiff alleges that during the term of the contract, Defendants discriminated against
Allstate by manipulating the work schedule and thereby causing Allstate to lose
thousands of dollars each month. (ECF No. 149 at 2.) Plaintiff argues that the fact that
it is a white female owned and operated company led it to be treated differently. (ECF
No. 149 at 1.) Plaintiff further alleges Defendants have since made false
representations about Plaintiff to potential clients of Plaintiff, damaging its reputation.
(ECF No. 124 at 11 ¶ 35.)
Plaintiff filed this civil rights case seeking damages for lost past and future
income and profits and damage to its reputation. (Id. at 21 ¶ B.) Plaintiff endorsed Don
Frankenfeld, a forensic economist, to testify regarding Plaintiff’s damages. Defendants
seek an order excluding the testimony of Frankenfeld based on an assessment that
Frankenfeld’s assumptions are unreliable. (ECF No. 148 at ¶ 11.)
II.

STANDARD FOR EXPERT TESTIMONY

Admissibility Under Rule 702
The admission of expert testimony is governed by Rule 702 of the Federal Rules
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of Evidence. Rule 702 states, in pertinent part:
If scientific, technical, or other specialized knowledge will assist the trier of fact to
understand the evidence or to determine a fact in issue, a witness qualified as an
expert by knowledge, skill, experience, training, or education, may testify thereto
in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient
facts or data, (2) the testimony is the product of reliable principles and methods,
and (3) the witness has applied the principles and methods reliably to the facts of
the case.
Fed. R. Evid. 702. As the rule makes clear, while required, it is not sufficient that an
expert be qualified based upon knowledge, skill, experience, training, or education to
give opinions in a particular subject area. Rather, the Court must “perform[ ] a two-step
analysis.” 103 Investors I, L.P. v. Square D Co., 470 F.3d 985, 990 (10th Cir. 2006).
After “determin[ing] whether the expert is qualified by ‘knowledge, skill, experience,
training, or education’ to render an opinion,” id. (quoting Fed. R. Evid. 702), the specific
proffered opinions must be assessed for reliability. See id.; see also Fed. R. Evid. 702
(requiring that the testimony be “based upon sufficient facts or data,” be the “product of
reliable principles and methods,” and reflect a reliable application of “the principles
and methods . . . to the facts of the case”).
Rule 702 “imposes on the district court a gatekeeper function to ‘ensure that any
and all scientific testimony or evidence admitted is not only relevant, but reliable.’”
United States v. Gabaldon, 389 F.3d 1090, 1098 (10th Cir. 2004) (quoting Daubert v.
Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)). During the gatekeeping process,
the court undertakes two analytical steps. First, it determines whether a witness is
qualified to provide the expert testimony at issue. Specifically, under Rule 702, an
expert must possess expertise based on “knowledge, skill, experience, training or
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education.” See United States v. Crabbe, 556 F. Supp. 2d 1217, 1221 (D. Colo. 2008).
Second, the court must focus on the proffered expert testimony itself to
determine if it is reliable. Id. The testimony must be based on “scientific, technical, or
other specialized knowledge,” and must be of a kind that will assist the trier of fact in
understanding the evidence. Fed. R. Evid. 702. The Court must “assess the reasoning
and methodology underlying the expert’s opinion, and determine whether it is both
scientifically valid and applicable to a particular set of facts.” Dodge v. Cotter Corp., 328
F.3d 1212, 1221 (10th Cir. 2003) (citing Daubert, 509 U.S. at 592-93). When assessing
reliability, “the court may consider several nondispositive factors: (1) whether the
proffered theory can [be] and has been tested; (2) whether the theory has been subject
to peer review; (3) the known or potential rate of error; and (4) the general acceptance
of a methodology in the relevant scientific community.” 103 Investors I, 470 F.3d at 990
(citing Daubert, 509 U.S. at 593-94). These considerations are not exhaustive. Rather,
“the trial judge must have considerable leeway in deciding in a particular case how to go
about determining whether particular expert testimony is reliable.” Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 152 (1999). Ultimately, the test requires that the expert
“employs in the courtroom the same level of intellectual rigor that characterizes the
practice of any expert in the relevant field.” Id.
Burden of Establishing Admissibility
While the proponent of the challenged testimony has the burden of establishing
admissibility, its proffer is tested against the standard of reliability, not correctness; a
proponent need only prove that “the witness has sufficient expertise to choose and
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apply a methodology, that the methodology applied was reliable, that sufficient facts and
data as required by the methodology were used and that the methodology was
otherwise reliably applied.” Crabbe, 556 F. Supp. 2d at 1221 (citing Mitchell v. Gencorp
Inc., 165 F.3d 778, 781 (10th Cir. 1999)).
The proponent of the opinion need not prove that the expert is indisputably
correct. See Mitchell, 165 F.3d at 781. However, the proponent must show that the
method employed by the expert in reaching the conclusion is sound and that the opinion
is based on facts which sufficiently satisfy Rule 702’s reliability requirements. See id. A
court’s focus generally should not be upon the precise conclusions reached by the
expert, but upon the expert’s qualifications, information relied upon and the
methodology employed in reaching those conclusions. See Daubert, 509 U.S. at 595;
see also Dodge, 328 F.3d at 1222.
III.

ANALYSIS
Defendants move to exclude Frankenfeld’s proffered expert opinion testimony

regarding damages. (ECF No. 148.) The parties jointly summarize Frankenfeld’s
expert opinion as:
To a reasonable degree of forensic economic certainty, the initial contract which
inaugurated the business relationship between Plaintiff and the City was for up to
$1.2 million or $44,444 per month on average. The revenue generated by the
initial contract would have equaled the full amount specified in the contract. On
or about August 2008, the revenue generated by the business relationship would
be an average of $178,390 per month – after adjusting the comparator contract
to $4.0 million reflecting an expansion of job tasks mirroring the expansion of job
tasks created by the City on behalf of the successor contractor (AAA National
Maintenance) [(“AAA”)]. Revenue thereafter would grow at an estimated rate of
6% per year, based upon a return on equity of 20% and an earnings retention
rate of 30%. In reducing losses to present value, the appropriate discount rate is
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15%. The duration of the business relationship between Plaintiff and the City is
estimated at 60 months. The terminal or residual value of the business
relationship after 60 months is $808,270. The variable cost of generating
incremental revenue is 42.48%. The aggregate damages, reduced to present
value, total $4,634,549, after adjusting for a contract size of $4.0 million. The
assumptions made are: 1) the contract would increase in size to $178,390 a
month; 2) revenue growth at 6% per year; 3) variable expenses are 42.48%; and
4) a discount factor of 15%. If all of these assumptions are correct, then by
month 60, the cumulative value is $3.8 million with an additional terminal or
residual value of $808,270.1
(Parties’ Joint 702 Mtn. at 1-2, ECF No. 102.)
A.

Qualified to Render an Opinion

The Court must first determine whether Frankenfeld is “qualified by knowledge,
skill, experience, training, or education to render an opinion.” Milne v. USA Cycling Inc.,
575 F.3d 1120, 1133 (10th Cir. 2009). Frankenfeld is a forensic economist with degrees
from Yale and Harvard, including an MBA from the Harvard Business School. (ECF No.
149-2 at 2.) He has provided expert testimony in cases for more than a decade, id. at
3-5, including developing a damage calculation model for and testifying on behalf of
victims before the September 11th Victim Compensation Fund, ECF No. 149-3 at 1.
Defendants do not contest whether Frankenfeld is qualified to render an expert opinion.
Therefore, the Court finds that Frankenfeld is qualified to render an expert opinion as
to Plaintiff’s damages resulting from its terminated pressure washing contract with the
City.

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In Frankenfeld’s expert report, the total calculated damages is $4,810,532 based on
representations from Plaintiff regarding AAA’s contract. However, upon review of AAA’s
contract, the overall damages figure was reduced to $4,634,549. (See Frankenfeld Dep. at 133
13-134:12.)

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B.

Reliability of Opinion

The Court must next determine whether Frankenfeld’s opinions are reliable.
Milne, 575 F.3d at 1133. The reliability determination focuses on the process or means
by which the witness derived the opinion. Under Rule 702, an expert may provide
testimony “if (1) the testimony is based upon sufficient facts or data, (2) the testimony is
the product of reliable principles and methods, and (3) the witness has applied the
principles and methods reliably to the facts of the case.” Fed. R. Evid. 702. The Court
must further determine whether the proffered expert testimony is relevant in that it will
assist the trier of fact. In so doing, the Court considers non-exclusive factors such as:
(1) whether the testimony is relevant; (2) whether it is within the juror's common
knowledge and experience; and (3) whether it will usurp the juror's role of evaluating a
witness's credibility. U.S. v. Rodriguez–Felix, 450 F.3d 1117, 1123 (10th Cir.2006)
(citations omitted). The question of relevance is essentially “whether [the] reasoning or
methodology properly can be applied to the facts in issue.” Daubert, 509 U.S. at 593;
see also General Elec. Co. v. Joiner, 522 U.S. 136, 151–52 (1997). The consideration
of relevant evidence is one of “fit” or “the logical relationship between the evidence
proffered and the material issue that evidence is supposed to support to determine if it
advances the purpose of aiding the trier of fact.” Bitler v. A.O. Smith Corp., 391 F.3d
1114, 1121 (10th Cir. 2004). Defendants argue the expert opinion at issue here is not
based upon reliable data, not based on a proper methodology, not based on reliable
assumptions, and not relevant. (ECF No. 148 at ¶ 8.)

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Underlying Data
Defendants argue Frankenfeld’s opinion is flawed because of the information that
he did not use to form his expert opinion. Frankenfeld did not look at (1) tax returns; (2)
audited financial statements; or (3) profits from the sale of equipment. (ECF No. 148 at
¶ 13, 14, citing Frankenfeld Dep. at 16:13-19, 50:1-17, 105:24-106:2, ECF No. 148-4.)
Defendants further argue Frankenfeld could not base his expert opinion specifically on
the City contract because Allstate did not keep its books in a manner separating income
and expenses by contract. (ECF No. 148 at ¶ 14.)
The Court disagrees. During testimony and in his deposition, Frankenfeld
described the type of documents he received from Allstate to formulate his opinion.
Frankenfeld requested, and received, Allstate’s contract with the City, financial
statements including income statements, balance sheets, and ledger books showing
expenses. (Unofficial Hearing Tr. (“U. Tr.”) 9:39:50-9:40:32.) Frankenfeld explained
that in his experience, he finds such financial statements “to be better information, more
detailed information than I would find on a tax return.” (Frankenfeld Dep. at 16:21-23,
ECF No. 148-4.) Frankenfeld explained how he used the ledger books to calculate fixed
and variable expenses, and how these calculations allowed him to determine figures
specific to the City contract. (Id. at 86:22-91:16; U. Tr. 9:45:38-9:46:06.)
The Court finds that Frankenfeld has shown that he relied upon sufficiently
reliable data in formulating his expert opinion. Where Defendants see weaknesses in
Frankenfeld’s data, they may show this through cross-examination. As the Supreme
Court stated, “[v]igorous cross-examination, presentation of contrary evidence and
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careful instruction on the burden of proof are the traditional and appropriate means of
attacking shaky but admissible evidence.” Daubert, 509 U.S. at 595.
Methodology
In their Motion, Defendants argue Frankenfeld’s methodology is unidentified,
vague, and based on unreliable assumptions. (ECF No. 148 at ¶ 25.) During
testimony, however, Frankenfeld identified his methodology as the discounted cash-flow
method, relied upon by “most economists.” (See U. Tr. at 10:05:02; 10:06:30.)
Frankenfeld explained his reliance on this method because alternative methods, such
as the cap rate method, are less dynamic and therefore do not sufficiently take into
account revenue and losses while also allowing for projections about the future. The
Court finds Frankenfeld’s deposition and testimony explaining the methodology used is
reliable and therefore does not preclude admission of Frankenfeld’s expert opinion.
Defendants’ criticisms of the methodology employed by Frankenfeld go to the weight
properly to be attributable to his testimony, but are insufficient to preclude as a whole
his testimony at trial.
Assumptions
Within his methodology, Frankenfeld applied a growth rate of 6 percent, a
discount rate of 15 percent, and calculated variable expenses at 42.48 percent. (Expert
Report (“R.”) at 2, ECF No. 148-3.) Defendants argue that other economists could use
different numbers to formulate their opinion. (ECF No. 148 at ¶ 25.) Frankenfeld,
however, pointed out that his numbers were, in general, on the conservative end of the
scale in determining damages, and specifically conceded that other experts in his field
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might have employed different assumptions on these key economic factors. (U. Tr. at
10:23:34; Frankenfeld Dep. at 111:8-112:15; 147:20-150:6, ECF No. 148-4.) The Court
need not determine whether Frankenfeld’s calculations are correct, but whether they are
reliable. See Mitchell, 165 F.3d at 781 (“The plaintiff need not prove that the expert is
undisputably correct . . . .”). For purposes of its Rule 702 gatekeeper function, the Court
finds these assumptions are reliable.
Included in Frankenfeld’s calculation was a business relationship duration of 60
months. This exceeds the contract length of 27 months with the inclusion of two preapproved one-year extensions, which totals 51 months. (ECF No. 148-1 at § 3.01.)
Frankenfeld, however, based this calculation on an expected business relationship, and
not on the contract itself. (Frankenfeld Dep. at 64:14-65:12, ECF No. 148-4.)
Frankenfeld also calculated a growth in income from a monthly average of $44,444 to a
monthly average of $167,000.2 (R. at 2, ECF No. 148-3; Frankenfeld Dep. v.2 at
134:22.) Frankenfeld calculated this growth in income based on the contract awarded
to AAA after Allstate’s contract was terminated.
Defendants argue the initial average monthly income calculation is flawed
because Plaintiffs actual billing only met or exceeded the $44,444 average three times
during the 14 months of Allstate’s contract with the City. (ECF No. 166-6.) Plaintiff,
however, argue that Defendants manipulated the work to be done so that Plaintiff could

2

Frankenfeld initially calculated Allstate’s monthly average would increase to $175,000
based on Plaintiff’s representations of the value of the AAA National Maintenance contract that
replaced Allstate’s contract with the City. Upon review of the actual contract, however,
Frankenfeld’s growth calculations were reduced by approximately 5 percent, including the
overall estimate of damages from

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not achieve the full potential of its contract. (ECF No. 149 at 2.) Defendants then argue
the growth in income is based on a different contract with a different scope of work and
is therefore unreliable as a calculation of future income for Allstate. (See Frankenfeld
Dep. v.2 at 136:6-15, ECF No. 149-5.) Frankenfeld explained that in comparing the
Allstate and AAA contracts, there were not many differences other than higher pricing
and a broader area covered. (Frankenfeld Dep. v.2 at 135:18-136:15, ECF No. 149-5.)
However, both contracts involved the same kind of work and therefore reliance on the
AAA contract provided relevant data. (See Id. at 136:14-15.)
The Court finds that while Defendants revealed significant deficiencies in
Frankenfeld’s assumptions and conclusions about the length of the business
relationship, once again these deficiencies ultimately go to the weight to be attributed to
this proposed testimonial evidence, something which of course must be determined by
the jury.
3.

Residual Value

Finally, Defendants argue Frankenfeld’s calculation of a residual, or terminal,
value of Allstate’s contract with the City is not based on reliable information. (ECF No.
148 at ¶ 23.) The Court agrees. Assuming the contract had not been terminated,
Frankenfeld determined Allstate’s business relationship with the City could be sold to
another business for approximately $808,000. (R. at 2, ECF No. 148-3.) Frankenfeld
acknowledged that Allstate’s contract with the City included a non-assignment clause,
restricting the right of assignment without prior written consent from the City. (U. Tr. at
11:04:38; see also ECF No. 148-1 at § 11.05.) Frankenfeld further acknowledged that
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he was not aware of a company that had been interested in such a purchase, but
determined that there would have been a residual value to Allstate’s business
relationship with the City after five years under the contract. (U. Tr. at 11:00:0811:00:22; Frankenfeld Dep. at 63:15-66:9.)
Considering the fact that Frankenfeld’s analysis of a residual value is calculated
for 9 months after Allstate’s contract with the City expires, and that it ignores the nonassignment clause in the parties’ contract, the Court finds there is simply too great a
gap between the data Frankenfeld relies upon and the conclusion he arrives at with
regard to residual value for it to be admissible under Rule 702. See Bitler, 391 F.3d
1121 (“[W]hen the conclusion simply does not follow from the data, a district court is
free to determine that an impermissible analytical gap exists between premises and
conclusion.”) Plaintiff will therefore not be permitted to proffer Frankenfeld’s opinion
regarding an alleged residual value of Allstate’s contract with the City.
IV.

CONCLUSION
Based upon the foregoing and the entire record before the Court, Defendants’

Joint Motion to Determine Admissibility of Plaintiff’s Proffered Expert Testimony, ECF
No. 148 is GRANTED in part and DENIED in part.
The Court hereby ORDERS:
1)

Frankenfeld may testify as an expert at trial in this case;

2)

Frankenfeld’s expert opinion as to Allstate’s damages may be presented
to a jury; however,

3)

Such testimony shall not include any testimony or documentary evidence
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on any alleged residual or terminal value of Plaintiff’s contract with the
City.
Dated this 2nd day of June, 2011.
BY THE COURT:

William J. Martínez
United States District Judge

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