Doctor's Assoc Inc v. QIP Holders LLC
ORDER denying 178 Motion for Cost and Fees. See the attached Memorandum of Decision. Signed by Judge Vanessa L. Bryant on 12/23/09. (Engel, J.)
UNITED STATES DISTRICT COURT D IS TR IC T OF CONNECTICUT
D O C TO R 'S ASSOCIATES, INC. P la in tiff, v. Q IP HOLDER LLC and IFILM CORP., D e fe n d a n ts .
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C IV IL ACTION NO. 3 :0 6 -c v-17 1 0 (V L B ) D e c e m b er 23, 2010
M E M O R AN D U M OF DECISION DENYING DEFENDANT QIP HOLDER'S MOTION FOR COSTS AND EXPENSES INCURRED TO REBUT THE DAMAGES AN AL YS IS OF PLAINTIFF'S ORIGINAL DAMAGES EXPERT [Doc. #178] Th e Plaintiff, Doctor's Associates, Inc. ("Subway"), brought this case for in jun c tive relief and damages against the Defendants, QIP Holder LLC ("Quiznos") a n d Ifilm Corp., asserting claims for false and deceptive advertising in violation of S e c tio n 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), along with Connecticut state la w claims for commercial disparagement and violation of the Connecticut Unfair Trad e Practices Act, Conn. Gen. Stat. § 42-110b et seq.. This case arises out of a Q u iz n o s ad campaign comparing certain Quiznos sandwiches to certain Subway s a n d w ic h e s in two national television commercials and an internet based contest. Presently pending before the Court is Quiznos' motion seeking costs and expenses in c u rre d to rebut the damages analysis of Subway's original damages expert. For the reasons set forth below, Quiznos' motion is DENIED. However, the Court orders tha t the new expert's testimony at trial will be limited to establishing the veracity and in te g rity of the original expert and the conclusions reached in the original expert's r e p o r t.
I. Factual and Procedural Background Th e following facts are relevant to Quiznos' motion for costs and expenses. On April 22, 2009, the Court conducted a hearing to address various issues related to discovery. During the hearing, Subway's counsel advised the Court of the n e ce s s a ry withdrawal of Subway's expert witness on damages, Dr. Alan A. S c h a c h te r, and its intention to substitute another expert for Dr. Schachter. Dr. Schachter is a Certified Public Accountant in business valuation and is c e rtified by the American Institute of Certified Public Accountants and the Ass o c ia tio n of Certified Valuation Analysis. Pl. Ex. A, Scachter Aff., ¶ 3. In 2003, Dr. S c h a c h te r was hired by Willamette Management Associates ("Willamette") as a M a n a g in g Director to supervise a new office in Westport, Connecticut. Id. ¶ 4. In J u ly of 2007, representatives of Willamette signed an engagement letter with S u b w a y to assist as litigation consultant and potential expert in the present litiga tio n . Id. ¶ 6. The engagement letter, which remains in effect, did not name the tes tifyin g expert. Id. During the period from July 2007 to July 2008, Dr. Schachter, a lo n g with other Willamette employees, performed services on behalf of Willamette p u rs u a n t to the engagement letter, including the preparation of an expert report on d a m a g e s. Id. ¶ 7. Dr. Schachter was disclosed to Quiznos as Subway's testifying e x p e rt, and Subway served his expert damages report on March 26, 2008. Quiznos' c o un s e l took Dr. Schachter's deposition on July 3, 2008. Id. ¶ 7. Thereafter, Q u iz n o s disclosed Stephen D. Silberman as an expert. Mr. Silberman reviewed Dr. S c h a c h te r's report and prepared a rebuttal report that was served on April 28, 2008. Mr. Silberman was deposed by Subway's counsel in connection with his report on 2
June 17, 2008. Quiznos contends that it expended a total of $262,948.86 to rebut Dr. S c h a c h te r's damages analysis. See Def. Ex. F, Rothstein Aff. During February of 2009, economic conditions resulted in the closing of W illa m e tte 's Connecticut office. Thereafter, Willamette advised Dr. Schachter that h e would have to relocate the Connecticut practice to New York. Dr. Schachter d e clin e d for personal reasons and resigned his position with Willamette in March 2 0 0 9 . Id. ¶ 8. Around that time, Dr. Schachter was introduced to Citrin Cooperman (" C itrin " ), and he engaged in discussions with Citrin regarding the possibility of jo inin g Citrin as a partner. Pl. Ex. B, Cooperman Aff., ¶ 3. Citrin is the independent a u dito r for Subway and has served in that capacity continuously since 1996. Id. ¶ 2. Citrin has also prepared tax returns and performed consulting work for Subway. Id. During the time that Citrin was considering inviting Dr. Schachter to join as a p a rtn e r, it learned that Dr. Schachter was a disclosed expert witness for Subway in the present litigation. Id. ¶ 4. Citrin determined that if Dr. Schachter were to join it a s a partner, this could present the appearance of a conflict of interest in Dr. S c h a c h te r's work as expert witness for Subway. Id. For instance, Citrin concluded tha t Dr. Schachter's credibility to serve in that capacity could be challenged because o f Dr. Schachter's financial interest in Citrin and Citrin's longstanding professional rela tio ns h ip with Subway. Id. As a result, Citrin determined it would not admit Dr. S c h a c h te r as a partner unless Dr. Schachter was removed as an expert witness in this litigation. Id. Dr. Schachter agreed that his joining Citrin would present a c o nflic t of interest that could prejudice Subway's position in this case and therefore tha t he was ethically obligated to remove himself as an expert for Subway in order 3
to accept the position with Citrin. Thereafter, Dr. Schachter resigned from his e n ga g e m e n t as Subway's expert witness and joined Citrin. Id. ¶ 15. On April 21, 2009, counsel for Subway advised Quiznos of the conflict and d is c lo s e d its new damages expert, Robert Schweihs, also of Willamette. On April 2 2 , 2009, the Court conducted a hearing on several pending discovery matters, d u rin g which time Subway's counsel raised the issue concerning the substitution b e ca u s e of Dr. Schachter's new relationship with Citrin and the apparent conflict of in te re st it created. 4/22/09 Tr., pp. 60-61. The Court acknowledged that Dr. S c h a c h te r's relationship with Citrin and the Plaintiff's relationship with Citrin could b e seen as a conflict. The Court stated that it was Dr. Schachter's "professional, e th ic a l obligation not to represent Subway, when he is employed by an accounting firm who is obligated to be independent in its review of Subway's financials." 4/22/09 Tr. at. 62. Therefore, the Court effectively approved the withdrawal and s u bs titu tio n of Mr. Schweihs. However, Subway did not inform the Court at the time o f the hearing that it had engaged Willamette, rather than Dr. Schachter himself, to p ro vid e expert services, and the Court only became aware of that fact when revie w in g the parties' briefs related to the instant motion. S u b s e q u e n tly, on July 28, 2009, Subway filed Mr. Schweihs' expert report. The report utilized a damages analysis different than that used by Dr. Schachter, and c o nc lu d e d that Subway suffered an additional $1.7 million in damages. Specifically, D r. Schachter's report concluded that Subway suffered total damages of $6,489,000 a s a result of Quiznos' advertisements, while Mr. Schweihs' report concluded that S u b w a y suffered total damages of $8,200,000. 4
II. Discussion Q u iz n o s asserts that it is entitled to $262,948.86 in costs and expenses in c u rre d to rebut the conclusions in Dr. Schachter's damages report. According to Q u iz n o s , Subway's untimely substitution of experts renders worthless all of the tim e , work, and expense that Quiznos expended to rebut Dr. Schachter's opinions. Quiznos maintains that Mr. Schweihs' report differs from Dr. Schachter's report in the following specific ways: Mr. Schweihs' analysis yielded a total damages amount that is 26.4 p e rc e nt more than Dr. Schachter's analysis ($8,200,000 versus $ 6 ,4 8 9 ,0 0 0 ). Mr. Schweihs' damages period for the Italian BMT advertisement is seven w e e k s long, and begins the week the Quiznos advertisement first aired a n d ends when the per-store revenue returned to the expected level. In c o ntra s t, Dr. Schachter's damages period for the same advertisement was fou r weeks long, beginning the week the Quiznos advertisement first aired a n d ending when the actual sales returned to the expected level. Thus, M r. Schweihs' damages period is a full three weeks (or 43 percent) longer tha n Dr. Schachter's damages period. D r. Schachter and Mr. Schweihs used different methods to account for the " s e a s on ality effect." Dr. Schachter and Mr. Schweihs used different benchmarks. Dr. S c h a c h te r compared the prior year's same-week sales to a benchmark, w h ic h was the average weekly sales for the remainder of the same year. Dr. Schachter used the period of 2002-2003 for the Cheesesteak figures a n d used 2002-2006 for the Italian BMT figures. Mr. Schweihs, on the o th e r hand, developed a benchmark by uses [sic] average store sales per w e e k to calculate the mean weekly sales per store for the prior 12-month p e rio d ("LTM Mean Sales"). Mr. Schweihs used the period of 2002-2006 for the Cheesesteak figures and 2004-2006 for the Italian BMT figures. Def. Reply Mem. at 7. Subway, on the other hand, argues that it should not be re q uire d to pay any costs or expenses incurred by Quiznos as a result of the s u b s titu tio n of Mr. Schweihs because "the substitution of Schweihs as [sic] the 5
reasons for Schachter's withdrawal were both documented and mandated by the e th ic al obligation of Schachter's profession." Pl. Obj. at 2. Further, Subway argues th a t the method of averaging sales used by Mr. Schweihs is not substantially d iffe re n t than the method used by Dr. Schachter, and that "[t]he primary difference in th e two reports relates to the number of weeks utilized to determine damages and th e use by Schweihs of a simple average compared to Schachter's use of a weighted a ve ra g e ." Id. at 6. Finally, Subway asserts that the rebuttal report prepared by Mr. S ilb e rm a n cannot be considered "worthless" because "the majority of the Silberman re p ort does not address the analyses performed by Schachter, but instead considers o th e r approaches to value." Id. at 2. Courts considering a party's request to substitute a new expert have applied th e standard for modifying a scheduling order set forth in Rule 16(b) of the Federal R ule s of Civil Procedure. See, e.g., Jung v. Neschis, No. 01 Civ. 6993 (RMB)(THK), 2 0 0 7 U.S. Dist. LEXIS 97173, at *51-*52 (S.D.N.Y. Oct. 23, 2007); Sithon Maritime Co. v. H olid a y Mansion, No. 96-2262-EEO, 1998 U.S. Dist. LEXIS. 11822, at *4 (D. Kan. July 3 0 , 1998) (stating that court would not be inclined "to allow the substitution of an e x p e rt witness without substantiated, good reason having been shown for doing s o " ). Here, the Court's initial scheduling order required the Plaintiff to disclose it's e x p e rt reports on or before August 1, 2007, and provided that any experts disclosed b y the Plaintiff would be deposed on or before September 1, 2007. See Doc. #78. The Court subsequently granted several extensions of the scheduling order. The m o st recent scheduling order pertaining to expert disclosure and discovery was e n tere d on April 22, 2008. See Doc. #130. The Court's April 22, 2008 Order extended 6
the discovery schedule as to both fact and expert witnesses until July 5, 2008. Dr. S c h a c h ter's expert report was disclosed to Quiznos on March 26, 2008, and Quiznos' c o u n s e l took his deposition on July 3, 2008. Mr. Schweihs was not disclosed as a d a m a g e s expert until April 21, 2009, outside of the effective schedule pertaining to e x p e rt disclosure and discovery. Therefore, the Plaintiff essentially seeks an e n la rg e m e n t of the discovery period in order to conduct expert discovery anew. See J u n g , 2007 U.S. Dist. LEXIS 97173, at *51. P u rs u a n t to Rule 16(b), a scheduling order "shall not be modified except upon a showing good cause." "A finding of good cause depends on the diligence of the m o vin g party." White Diamond Co. v. Castco, Inc., 436 F. Supp. 2d 615, 626 (S.D.N.Y. 2 0 0 6 ). Having a more complete understanding of the facts pertaining to Subway's re te n tio n of a damages expert, the Court finds that the Plaintiff has adequately d e m o n s tra te d good cause to substitute another employee of Willamette for Dr. S c h a c h ter to present and defend Dr. Schacter's original expert opinion. As outlined in detail in Section I, supra, Subway has provided affidavits from both Dr. Schachter a n d a representative from his new employer, Citrin, establishing that Dr. Schachter w ith d re w as an expert witness for Subway in connection with this litigation as the re s u lt of a legitimate conflict of interest. Within two months of learning of this c o n flic t, Subway informed both Quiznos and the Court. Accordingly, Mr. Schweihs, w h o is also an employee of Willamette, may testify as to Dr. Schachter's original e x p e rt report. Having concluded that Subway has demonstrated good cause to substitute Mr. 7
Schweihs as an expert, the Court must next determine whether Quiznos is entitled to c o s ts and expenses it incurred to rebut the damages analysis of Dr. Schachter. Generally, in cases in which courts have awarded costs and expenses associated w ith the substitution of an expert, there has been some evidence of bad faith, fault, o r tactical maneuvering on the part of the party making the substitution. See, e.g., J u n g , 2007 U.S. Dist. LEXIS 97173, at *44-46 (conditioning substitution of new e x p e rts on plaintiff's payment of all costs associated with rebutting original expert's o p inio n , as well as fees incurred in deposing original expert, where the plaintiff e n g a ge d in "dilatory and misleading" conduct, including attempting to conceal the fa c t that the original expert was suffering from Alzheimers, failing to disclose that the o rig in a l expert's report contained several false representations and relied upon info rm atio n that was not actually obtained by the expert, and producing altered c o p ie s of certain tape recordings that the expert purportedly relied upon); Gucci Am., Inc . v. Exclusive Imports, Int'l, 99 Civ. 11490, 2001 U.S. Dist. LEXIS 67, at *11-*13 (S .D .N .Y. Jan. 9, 2001) (awarding defendants fees and expenses associated with d e p o s in g original expert where the plaintiff purposefully chose an expert with limited k n o w le d g e and then withdrew that expert and substituted a new expert after the o rig in a l expert's credibility was called into question at deposition). There is no direct e viden c e of bad faith on Subway's part in this case, and the Court takes at face value S u b w ay's representation that it was not attempting to engage in tactical maneuvering in order to better its position by substituting Mr. Schweihs for Dr. Schachter. Therefore, the Court declines to award Quiznos costs and expenses associated with re b utting Dr. Schachter's expert report. 8
On the other hand, although the reason for Dr. Schachter's withdrawal was not w ith in Subway's control and there is no direct evidence that Subway substituted Mr. S c h w ieh s in bad faith, the practical result of the substitution is to put Quiznos in a s ig n ific a n tly worse position than it would have been otherwise, because Mr. S c h w e ih s concluded that Subway suffered damages in an amount approximately $ 1 .7 million higher than the amount calculated by Dr. Schachter. Moreover, at the tim e of the April 22, 2009 hearing in which the Court indicated that it agreed that Dr. S c h a c h ter was ethically obligated to withdraw as Subway's expert, Subway did not info rm the Court that it had engaged Willamette, rather than Dr. Schachter himself, to p ro vid e expert services. Thus, the Court was unaware and did not contemplate that W illa m e tte could simply have assigned another expert to Subway's case in order to s u p p o rt the conclusions reached in Dr. Schachter's original report. Instead, Subway c o m m is s io n e d Mr. Schweihs' preparation of an entirely new expert report using a d iffe re n t analysis and reaching a damages amount $1.7 million higher than that re a c h e d by Dr. Schachter. Subway has not provided any indication that Dr. S c h a c h ter's original report - which he prepared on behalf of Willamette - was ina c c u ra te , or that he lacked integrity in any way. Accordingly, although the Court w ill permit the substitution of Mr. Schweihs, who is also an employee of Willamette, th e scope of his testimony will be substantially limited at trial. See Cardiac Sci., Inc. v. Koninklijke Philips Elecs., N.V., No. 03-1064 (DWF/RLE), 2006 U.S. Dist. LEXIS 9 3 8 3 3 , at *11-*12 (D. Minn. Dec. 22, 2006) (permitting substitution of plaintiff's expert o n the condition that the new expert "may not testify in any manner that is contrary to or inconsistent with" the original expert, in order to "minimize the inevitable 9
prejudice to [the defendant] caused by the substitution"). III. Conclusion B as e d on the above reasoning, Quiznos' motion for costs and expenses [Doc. # 1 7 8 ] is DENIED. The Court declines to award Quiznos the costs and expenses it inc u rre d to rebut Dr. Schachter's damages analysis. The Court further orders that S u b w ay will be permitted to substitute Mr. Schweihs as an expert. However, Mr. S c h w e ih s ' testimony at trial will be limited to establishing the veracity and integrity of D r. Schachter and the conclusions reached in Dr. Schachter's original expert report.
IT IS SO ORDERED.
/s/ Vanessa L. Bryant U n ite d States District Judge
D ate d at Hartford, Connecticut: December 23, 2009.
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