Wind Logistics Professional, LLC et al v. Universal Truckload, Inc.
Filing
182
OPINION & ORDER: The Court DENIES Counterclaim Defendants' 150 Daubert Motion to Exclude the Report and Testimony of Universal's Putative Expert Michael Kahaian. Signed by Judge Michael L. Brown on 6/22/20. (bjh)
Case 1:16-cv-00068-MLB Document 182 Filed 06/22/20 Page 1 of 20
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
Wind Logistics Professional, LLC,
and Anthony Parson,
Plaintiffs/Counterclaim
Defendants,
Case No. 1:16-cv-00068
v.
Universal Truckload, Inc.,
Michael L. Brown
United States District Judge
Defendant/Counterclaim
Plaintiff,
Ace Doran, LLC, Bennett Motor
Express, LLC, and Bennett
International Group, Inc.,
Counterclaim Defendants.
________________________________/
OPINION & ORDER
Counterclaim Defendants move to exclude some testimony by
Counterclaim Plaintiff’s damages expert. (Dkt. 150.) The Court denies
that motion.
Case 1:16-cv-00068-MLB Document 182 Filed 06/22/20 Page 2 of 20
I.
Background
Counterclaim Plaintiff Universal Truckload, Inc. (“Universal”) sues
Counterclaim Defendants Wind Logistics Professional LLC, and Anthony
Parson for breach of fiduciary duty.
Universal sues Counterclaim
Defendants Ace Doran, LLC; Bennett Motor Express, LLC; and Bennett
International
Group,
LLC
(collectively
“Bennett”)
for
tortious
interference with a business relationship.1
Anthony Parson worked as an independent contractor for
Universal, coordinating the transportation and delivery of industrial
wind equipment for one client, GE Wind Energy Outbound (“GE Wind”).
(Dkt. 131-1 ¶¶ 1–4.) He created a network of truck drivers who worked
as independent contractors to carry GE Wind freight under Universal’s
motor carrier license. (Dkt. 119 at 13:7–10.) The drivers owned and
operated specialized transportation equipment for over-sized loads. (Dkt.
124 at 45:22–46:9.) Over the years, Universal used this arrangement to
increase its business with GE Wind, growing from $22 million in 2013 to
$40 million in 2015. (Dkt. 124 at 127:23–128:22.)
Universal also brought a tortious interference claim against Mr. Parson
and Wind Logistics. (See Dkt. 38 at 27.) The Court dismissed that claim.
(See Dkt. 146 at 36–38.)
1
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In 2015, Mr. Parson decided to leave Universal and join a
competitor, Bennett. (Id. at 40:2–17.) In November 2015, he signed a
letter saying he would join Bennett in January 2016. (Dkt. 124-1 at 33–
34.) He did not, however, tell Universal of his plan, and Universal only
learned of it in mid-December. (Dkt. 120 at 111:1–12.) While Universal
was in the dark, Mr. Parson had extensive communications about his
plan with Bennett, GE Wind, and the network of drivers. (See Dkt. 146
at 6–8.) After his departure, Universal’s business with GE Wind shrunk
to $4.3 million. (Dkt. 120 at 41:6–19.) The Court previously found Mr.
Parson breached his fiduciary duty to Universal. (See Dkt. 146 at 11–
22.) Universal also still has tortious interference claims against Bennett.
Universal retained Mr. Kahaian to calculate the economic loss,
including lost profits, it suffered as a result of Parson’s and Bennett’s
alleged misconduct. Mr. Kahaian found all of Universal’s lost profits
resulted from the Counterclaim Defendants’ tortious conduct. (Dkt. 1501 at 6.) Mr. Kahaian calculated lost profits using the so-called “beforeand-after” methodology. (Id. at 6.) He did this by comparing Universal’s
profits before (or but-for) Parson’s and Universal’s actions with its profits
after (or as a result of) the alleged actions. (Id.) This method was
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intended to identify the profits Universal would have earned if the
Parson Counterclaim Defendants had not severed their relationship with
Universal. In his report, Mr. Kahaian explained this “is a commonly
accepted method whereby it is assumed that the business would have
performed consistently with its actual historical results.” (Id.)
He
further explained that, as part of his analysis, he estimated the value of
GE Wind’s business that Universal would have received, deducted
identifiable costs Universal would have incurred to generate that
business, considered steps Universal took to mitigate the impact of
Parson’s and Bennett’s actions, and applied a discount rate to arrive at
the present value of lost profits. (Id.) For the “before” period, he used a
growth rate of 9.3%, which he found from a report paid for by the
American Wind Energy Association (“AWEA Report”). (Id.) For the
“after” period, he used a growth rate of 20%, which he described as in line
with Universal’s 2016–2017 financial information. (Id. at 28.)
The Counterclaim Defendants seek to exclude Mr. Kahaian’s
testimony and report on lost profits for two reasons: first, they argue Mr.
Kahaian inappropriately assumed all of Universal’s lost profits occurred
as a result of Mr. Parson’s breach of fiduciary duty and Bennett’s tortious
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interference.2 Second, Counterclaim Defendants argue Mr. Kahaian’s
calculation of lost profits is unreliable, specifically his metrics for
projected growth for both the before and after periods.
II.
Standard of Review
Rule 702 of the Federal Rules of Evidence governs the admissibility
of expert opinions. It provides:
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. The party seeking to introduce expert testimony must
establish, by a preponderance of the evidence, the factors set out in Rule
702. United States v. Frazier, 387 F.3d 1244, 1260 (11th Cir.2004). The
Supreme Court discussed the standard of admissibility of expert
testimony in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). Under Daubert,
Counterclaim Defendants do not seek to exclude his report on
contractual damages or disgorgement damages. (See Dkt. 150-1 at 5.)
2
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expert testimony may be admitted into evidence if: (1) the
expert is qualified to testify competently regarding the
matters he intends to address; (2) the methodology by which
the expert reaches his conclusions is sufficiently reliable as
determined by the sort of inquiry mandated in Daubert; and
(3) the testimony assists the trier of fact, through the
application of scientific, technical, or specialized expertise, to
understand the evidence or to determine a fact in issue.
City of Tuscaloosa v. Harcros Chems., Inc., 158 F.3d 548, 562–63 (11th
Cir.1998) (footnote omitted) (citing Fed. R. Evid. 702; Daubert, 509 U.S.
at 589).
The Supreme Court emphasized that the Rule 702 inquiry is a
flexible one. Id. at 594. And, while Daubert focused on the admissibility
of scientific expert testimony, in Kumho Tire Co. v. Carmichael, 526 U.S.
137 (1999), the Supreme Court held that Daubert’s methodology applies
equally to experts who are not scientists. The Court held that a trial court
may consider one or more of the specific factors mentioned in Daubert in
assessing non-scientific expert testimony, but the trial court retains
discretion to decide if non-scientific testimony is reliable and relevant to
the case. Kumho Tire, 526 U.S. at 141.
When conducting this inquiry for experts offering non-scientific
testimony, the advisory committee notes for Rule 702 suggest that courts
consider factors such as:
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(1)
Whether the [expert is] proposing to testify about
matters growing naturally and directly out of research
conducted independent of the litigation, or whether [the
expert] has developed the opinion expressly for purposes
of testifying;
(2)
Whether the expert has unjustifiably extrapolated from
an accepted premise to an unfounded conclusion;
(3)
Whether the expert has adequately accounted for
obvious alternative explanations;
(4)
Whether the expert is being as careful as he would be in
his regular professional work outside his paid litigation
consulting; and
(5)
Whether the field of expertise claimed by the expert is
known to reach reliable results for the type of opinion
the expert would give.
Fed. R. Evid. 702, advisory committee note (2000 amends.) (citations and
internal quotations omitted); see also Kumho Tire, 526 U.S. at 149–52.
Finally, expert testimony must actually assist the trier of fact to
understand the facts in evidence or to determine a fact in issue. Fed. R.
Evid. 702(a). Expert testimony assists the trier of fact “if it concerns
matters that are beyond the understanding of the average lay
person.” Frazier, 387 F.3d at 1262. Expert testimony generally will not
help the trier of fact “when it offers nothing more than what lawyers for
the parties can argue in closing arguments.” Id. at 1262–63.
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Principally, Rule 702 imposes a duty on trial courts to act as
“gatekeepers” to ensure that speculative, unreliable, and irrelevant
opinions do not reach the jury. See Daubert, 509 U.S. at 589 n.7;
McCorvey v. Baxter Healthcare Corp., 298 F.3d 1253, 1256 (11th Cir.
2002); McClain v. Metabolife Intern., Inc., 401 F.3d 1233, 1237 (11th Cir.
2005). At the same time, a court must heed its role as a gatekeeper and
the jury’s role as the ultimate fact-finder. The gatekeeping function “is
not intended to supplant the adversary system or the role of the
jury.” Allison v. McGhan Medical Corp., 184 F.3d 1300, 1311 (11th Cir.
1999). “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.” Daubert, 509 U.S. at 596.
III.
Discussion
A.
Whether Mr. Kahaian’s Opinion Lacks Foundation
Counterclaim Defendants claim Mr. Kahaian improperly assumed
that all of Universal’s lost profits occurred because of Mr. Parson’s breach
of fiduciary duty and Bennett’s tortious interference rather than looking
at alternative causes for the downturn in profits. (Dkt. 150 at 12.) As a
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result, they say his opinion lacks a proper foundation. Nowhere in his
report did Mr. Kahaian say he considered whether either Universal’s own
conduct or the Counterclaim Defendant’s non-tortious conduct might
have led to Universal’s reduced profits. In its briefing, Universal insisted
its expert was permitted to merely assume causation. (Dkt. 155 at 6–7.)
It also argued it was logical to do so here because “there are no reasonable
alternative sources of Universal’s lost profits” other than Counterclaim
Defendants’ misconduct.” (Id. at 9.)
Counterclaim Defendants cite Flowers Bakeries Brands, Inc. v.
Interstate Bakeries Corp., No. 1:08-cv-2376, 2011 WL 1004657 (N.D. Ga.
Mar. 17, 2011) and Zimmer, Inc. v. Stryker Corp., No. 3:14-cv-0152, 2018
WL 276324 (N.D. Ind. Jan. 3, 2018), in support of their argument that
the expert testimony is inadmissible.
In Flowers, a trademark
infringement case, the defendant sought to exclude an expert’s testimony
about lost profits because the expert failed “to account for lost profits
attributable to market factors such as price, advertising, and quality”
other than the defendant’s conduct. Flowers Bakeries Brands, Inc., 2011
WL 1004657 at *2. Indeed, the expert conceded that he did not consider
those factors. Id. The court excluded the expert’s testimony, finding his
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intentional decision to ignore other admittedly present market factors
rendered his testimony unreliable and unhelpful to the jury. Id. at *3.
The court explained that “while any calculation might have proven
imprecise, [the expert] ensured his calculations would be particularly
inaccurate by ignoring factors that could be significant to his analysis.”
Id.
Similarly, in Zimmer, a plaintiff proffered expert testimony to show
its profits fell as a result of key employees’ breaches of non-compete
agreements. 2018 WL 276324, at *3. The expert, like Mr. Kahaian, used
the before-and-after methodology. Id. at *2. The expert admitted at his
deposition that he assumed all lost profits arose from the alleged
misconduct. Id. The court explained that “[a]t every critical point in his
opinion, [the expert] attributes lost revenue and profits to [defendants’]
alleged wrongdoing without ever considering the possibility that the lost
revenues and profits flowed from other non-actionable events.” Id. at *4.
The district court thus excluded the expert’s testimony as utterly
unhelpful to the jury in deciding what lost profits resulted from the
defendants’ conduct. Id.
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Universal seeks to counter these cases by pointing to B-K Cypress
Log Homes Inc. v. Auto-Owners Insurance Co., No. 1:09-cv-211, 2012 WL
1933766, (N.D. Fla. May 25, 2012). In that case, the court permitted an
expert’s testimony that assumed “all loss in profitability was attributable
to [defendant’s] bad faith.”
Id. at *5. The court found it remained the
jury’s role to “consider and weigh such evidence and determine whether
in fact some or all of the damages determined by [the expert] are causally
connected to [the defendant’s] actions.” Id.
This Court agrees with Zimmer and Flowers. Perhaps an expert
can assume liability for all lost profits in some case.
But not here.
Universal continued to operate after the alleged misconduct. Its business
is complicated, relying upon GE Wind to provide loads, drivers to accept
their assignments, and Universal to earn continuing business by
satisfying GE Wind’s needs. Universal cannot prevent the drivers from
working for other companies. Nor could it require Parson to continue
working with it. To recover against Parson and the Bennett entities,
Universal must show that damages (including lost profits) arose from
Parson’s breach of its fiduciary duty and/or the Bennett entities’ tortious
interference rather than from some other market force. Expert testimony
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that merely assumes this causation without doing any such analysis
would not assist the trier of fact in calculating recoverable damages (if
any).
It may be difficult to assess damages and any calculation may prove
somewhat imprecise. A jury can assess that. The Court also does not
hold an expert must consider and eliminate all possible causes. See
Packgen v. Berry Plastics Corp., 847 F.3d 80, 87 (1st Cir. 2017) (finding
an expert “not required to eliminate every other possible cause” of lost
profits in a products liability case (citing Ambrosini v. Labarraque, 101
F.3d 129, 140 (D.C. Cir. 1996) (“The fact that several possible causes
might remain ‘uneliminated’ . . . only goes to the accuracy of the
conclusion, not the soundness of the methodology.”))). But, to allow an
expert to present testimony that ignores the difference between
actionable conduct and nonactionable conduct would be to ignore the
requirement that expert testimony must assist the trier of fact in
deciding some relevant issue.
This conclusion may not decide the ultimate issue here because,
despite having argued in its response brief that Mr. Kahaian was not
required to consider causation but rather could merely assume it,
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Universal took a different position at a hearing before this Court.
Specifically, Universal insisted that Mr. Kahaian actually considered
other potential factors in determining all of Universal’s profits resulted
from the alleged misconduct. It argued that Mr. Kahaian’s expert opinion
is thus admissible under the holdings in Flowers and Zimmer.
At the hearing on Counterclaim Defendants’ motion to exclude Mr.
Kahaian’s testimony, Universal relied heavily on Mr. Kahaian’s
deposition testimony. It showed, for example, that when asked about
factors he considered outside the tortious acts, he said he looked at “the
whole body of work.”
(Dkt. 153 at 110:25–11:17.)
This included
“economic factors,” “things happening in the industry,” or a “labor
workforce issue.” (Id.) He testified that, after considering these factors,
“in this case, it was pretty clear that the loss of revenue and profitability
was directly related to Mr. Parson and the Counter-Defendants as a
whole taking that business.” (Id.)
In their motion to exclude, Counterclaim Defendants argued that
Mr. Kahaian never considered whether Universal might have lost drivers
(and thus GE Wind business) because it considered implementing a
policy of delaying drivers’ payments. (Dkt. 150 at 13.) At the hearing,
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however, Universal showed Mr. Kahaian considered this. It pointed to
testimony by Mr. Kahaian that he considered how Universal contributed
towards the loss of the drivers — he knew that Universal proposed
changing the timing of driver pay, but he did not think that proposal
impacted Universal’s business because Universal never implemented it.
(Dkt. 153 at 112.) Testifying about Universal’s proposed change to the
timing of driver pay, he said, “I wouldn’t have considered that as a reason
why the business would have moved. The business moved because Mr.
Parson left.” (Id. at 112:14–13:5.) Though he analyzed other factors, his
main consideration was the economic data: “what happened in terms of
the financial activity, that provided clarity as to how I could directly link
the loss of business to those actions.” (Id.)
In their motion to exclude, Counterclaim Defendants also argued
Mr. Kahaian failed to consider testimony by Thomas Robinson, the GE
Wind employee with responsibility for wind shipments of GE freight.
(Dkt. 150 at 12.) Counterclaim Defendants explained that Mr. Robinson
testified, for example, that he did not initially award loads to Bennett
until Universal rejected them, that Universal hurt its relationship with
GE Wind by brokering freight to unauthorized carriers and by failing to
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properly train its employees on the GE Wind account, and that Universal
actually returned some awards to GE Wind because it lacked the capacity
to complete them. (Id.) He also testified that Parson never solicited him
to take loads from Universal to the Bennett entities. (Id.) Counterclaim
Defendants argued that Mr. Kahaian failed to consider all of this. But it
appears Mr. Kahaian read Mr. Robinson’s deposition testimony. His
expert report lists Mr. Robinson’s deposition as a source he considered.
(Dkt. 151-1 at 10.) He also testified that he read it. (Dkt. 153 at 115.)
Mr. Kahaian may have weighed the evidence differently than
Counterclaim Defendants or their expert weighed it. He also may not
have considered every potential cause that Counterclaim Defendants’
lawyers or their expert can posit at the end of discovery based upon their
review of the facts and advocacy. But to offer an opinion, he did not have
to consider every potential other source of lost profits. See Ambrosini,
101 F.3d at 140. That a lawyer or another expert can think of some other
cause or some other factor that another expert did not consider is not the
test for the admissibility. To make that the test would cause Rule 702 to
turn on novel arguments of counsel and “but what about this” arguments.
He apparently considered other causes, including causes Counterclaim
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Defendants’ cited in their motion, and that is sufficient (in this case) to
distinguish Flowers and Zimmer.
The Court acknowledges that some evidence could undercut Mr.
Kahaian’s conclusions. He did not, for example, include any analysis of
these issues in his report. And, other than testifying that he reviewed
Mr. Robinson’s deposition, he did not testify as to how he discounted the
issues Counterclaim Defendants raise from it. Perhaps that means he
did not really consider those issue in any meaningful way. But, during
Mr. Kahaian’s deposition, Counterclaim Defendants chose not to probe
the extent of his consideration in any great detail. For present purposes,
the Court concludes Universal has carried its burden of showing by a
preponderance of the evidence that Mr. Kahaian’s expert testimony has
an adequate foundation and will be helpful to a jury. Counterclaim
Defendants’ concerns are clear fodder for cross-examination but not a
basis for excluding his opinion. See Daubert, 509 U.S. at 596.
B.
Whether Mr. Kahaian’s Methodology Was Reliable
Counterclaim Defendants also argue Mr. Kahaian’s methodology
was unreliable. In Daubert, the Supreme Court laid out four illustrative
factors for evaluating the reliability of a scientific expert opinion:
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(1) whether the expert’s theory can be and has been tested;
(2) whether the theory has been subjected to peer review and
publication; (3) the known or potential rate of error of the
particular scientific technique; and (4) whether the technique
is generally accepted in the scientific community.
Quiet Tech. DC-8, Inc. v. Hurel-Dubois UK Ltd., 326 F.3d 1333, 1340–41
(11th Cir. 2003); see Daubert, 509 U.S. at 589. These factors ask the trial
court to consider whether the reasoning stands up to expert scrutiny. See
Kumho Tire, 526 U.S. at 152 (“[T]he objective of that requirement is to
. . . make certain that an expert, whether basing testimony upon
professional studies or personal experience, employs in the courtroom the
same level of intellectual rigor that characterizes the practice of an expert
in the relevant field.). These factors can also be used “to evaluate the
reliability of non-scientific, experience-based testimony.” Frazier, 387
F.3d at 1261 (citing Kumho Tire, 526 U.S. at 152).
“Exactly how
reliability is evaluated may vary from case to case, but what remains
constant is the requirement that the trial judge evaluate the reliability
of the testimony before allowing its admission at trial.” Id.
As explained above, Mr. Kahaian did a before-and-after analysis,
comparing the profits Universal expected to earn if Mr. Parson had
stayed through his exclusivity agreement (but-for profits) with the profits
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Universal expected to earn after Mr. Parson left (actual profits). When
an expert uses this method, “[h]is assumptions and projections must rest
on ‘adequate bases’ and cannot be the product of mere speculation.”
Zimmer, 2018 WL 276324, at *1 (quoting Park v. El Paso Bd. of Realtors,
764 F.2d 1053, 1067 (5th Cir. 1985)). Counterclaim Defendants claim
Mr. Kahaian used too high a growth rate for but-for profits and too low a
growth rate for actual profits.
For but-for profits, Mr. Kahaian used a 9.3% growth rate, which he
borrowed from the AWEA Report, a wind energy industry publication.
(Dkt. 150-1 at 4, 28.) Counterclaim Defendants argue this was a fatal
mistake because the growth rate for the wind energy industry does not
determine the growth rate of wind energy transportation. When asked
about the potential disconnect between these industries, Mr. Kahaian
responded, “wind energy business is going to continue to grow
substantially over the next several years . . . which to me translates into
additional need for transportation logistics services, of which Universal
was one of the largest of the 20 logistical providers of the blades.” (Dkt.
153 at 93:16–25.) The Court accepts his reasoning. He also did not
blindly rely on the industry report. He verified that the 9.3% growth rate
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correlated with Universal’s historical growth, even if some years showed
different rates. (Id. at 88:19–19:23.) And he also confirmed the AWEA
Report relied on empirical data for its conclusion. (Id. at 82:16–83:7.)
Given that analysis, Mr. Kahaian could rely on an industry report. See
B-K Cypress Log Homes Inc. v. Auto-Owners Ins. Co., No. 1:09-cv-211,
2012 WL 1933766, at *4 (N.D. Fla. May 25, 2012). The Court finds the
AWEA Report provides a reliable basis for Universal’s but-for growth
rate. Counterclaim Defendants also argue the 9.3% growth rate is too
ambitious, created in part to advertise the wind energy industry. This
may be a great issue for cross-examination but does not render Mr.
Kahaian’s methodology unreliable.3
Counterclaim Defendants then argue Mr. Kahaian’s actual growth
rate for Universal was too low. Mr. Kahaian chose twenty percent, which
he found tracked Universal’s 2016–17 financial data. (Dkt. 150-1 at 28.)
Much time has passed since Mr. Kahaian submitted his expert report. In
fact, the entire period of Mr. Parson’s exclusivity with Universal has
Counterclaim Defendants argue the AWEA Report is hearsay. The
Court finds that it is admissible under Rule 703 of the Federal Rules of
Evidence, which states, “[i]f experts in the particular field would
reasonably rely on those kinds of facts or data in forming an opinion on
the subject, they need not be admissible for the opinion to be admitted.”
3
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passed and thus the entire period in which Universal can collect lost
profits has expired. As a result, Mr. Kahaian no longer needs to predict
Universal’s profits and revenues but can use Universal’s actual financial
information during the relevant period.
For his testimony to be
admissible, Mr. Kahaian must recalculate Universal’s lost profits by
using Universal’s financial information through the expiration of Mr.
Parson’s agreed exclusivity with Universal. The Court has entered an
order allowing the discovery necessary for him to do so.
IV.
Conclusion
The Court DENIES Counterclaim Defendants’ Daubert Motion to
Exclude the Report and Testimony of Universal’s Putative Expert
Michael Kahaian (Dkt. 150).
SO ORDERED this 22nd day of June, 2020.
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