U.S. ACCU-MEASUREMENTS, LLC et al v. RUBY TUESDAY, INC.
OPINION fld. Signed by Judge Kevin McNulty on 4/25/13. (sr, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
LLC, et al.,
Civ. No. 2:10-5011 (KM)
RUBY TUESDAY, INC.,
KEVIN MCNULTY, U.S.D.J.:
This action arises from a dispute between Ruby Tuesday, Inc. (“Ruby
Tuesday”), and two of its external lease auditors, U.S. Accu-Measurements,
LLC (“USAM”), and Ross Consulting Group, Inc. (“RCG”).’ USAM and RCG
undertook to audit leases to determine if Ruby Tuesday, a restaurant chain,
was being overcharged by its landlords. The agreements between Ruby Tuesday
and the auditors contained a contingent fee arrangement, the scope of which is
disputed. As plaintiffs, USAM and RCG claim a percentage of overcharges
uncovered by their audits. The plaintiffs also claim that Ruby Tuesday used or
should have used the audit results to prise favorable settlements from the
landlords, and claim a share of these savings as well.
USAM and RCG have proffered the report of an expert on damages,
Lawrence Chodor. Pursuant to Daubert v. Men-eli Dow Pharmaceuticals, 509
U.s. 579 (1993), and Federal Rule of Evidence 702, Ruby Tuesday has moved
to preclude Chodor from testifying. Ruby Tuesday’s motion includes a
summary judgment component because it alleges that, once Chodor’s
testimony is excluded, USAM cannot make a prima facie case of damages.
Ruby Tuesday has proffered the reports of its own damages expert, David
H. Glusman, and an expert on the restaurant business, Ronald N. Gorodesky.
USAM and RCG have cross-moved to exclude their testimony.
USAM and RCG are apparently joint venture partners. (Wiss Report at 1, Ex. M
to DSMF [ECF No. 15-18]).
I find that the proffered expert testimony comports with the applicable
legal standards under Rule 702 and Daubert. I will therefore deny both parties’
FACTS & PROCEDURAL HISTORY
A. The USAM and RCG Agreements
Ruby Tuesday engaged USAM and RCG to audit certain leases. The
audits were to focus on overcharges or inaccuracies in common area
maintenance (“CAM”) charges for which landlords billed Ruby Tuesday. (Def.
Statement of Material Facts (“DSMF”) ¶ 2 [ECF No. 15-2]). Ruby Tuesday
entered into two relevant audit agreements: the USAM Agreement and the RCG
The USAM Agreement, dated May 29, 1998, is confined to certain listed
leases. (Ex. A to DSMF at 2 [ECF No. 15-4]). It states that USAM is to be paid a
contingent fee, based upon
a realization in fact by [Ruby Tuesday] of refunds made by
landlords or their assigns, predicated upon information
documented by [USAM] that overcharges in fact occurred.
Remuneration is to be made
only when, as and if refunds and
cost reductions are realized, as received by [Ruby Tuesday], and
whether in cash, kind, or by way of rental credit.
(Id. at 1).
That contingent fee is to be calculated in two ways. USAM is to receive
Pursuant to L. Civ. R. 56.1, Ruby Tuesday has submitted a statement of
material facts that it believes are undisputed and USAM has filed a corresponding
response. The facts discussed here are taken from these submissions, attached
exhibits, supporting affidavits, and, where appropriate, legal memoranda.
In its Reply Brief, Ruby Tuesday argues that many of USAM’s responses to Ruby
Tuesday’s undisputed facts are deficient, and urges that they be deemed admissions.
(Reply Br. at 2-9 [ECF No. 21]). I have reviewed the allegedly deficient responses and
for the most part do not find them to be improper. Even assuming arguendo that they
were, genuine issues of material fact would still exist as to liability and damages, as
50% of Ruby Tuesday’s gross monetary recovery for overpayments
from the date of the lease’s inception through the year the lease
was analyzed, and
25% of the gross adjustments and/or corrections of overcharges
which would have taken place over the five years subsequent to the
year the lease was analyzed.
(Id.). Both sides pledge “good faith cooperation” to achieve effective results for
Ruby Tuesday under the Agreement. (Id. at 2).
The RCG Agreement, dated April 6, 2001, is confined to leases with a
particular landlord, the Simon Property Group (“Simon Property”). (Ex. B to
DSMF at 1-2 [ECF No. 15-5]). It incorporates the contingent fee structure of the
USAM Agreement. (Id.). It contains an additional provision in which Ruby
Tuesdayagreestoimmediate1y advise RC-GifLandlord attempts tü negotiate -aE
settlement(s) directly with [Ruby Tuesday]. If [Ruby Tuesday] elects to negotiate
directly with Landlord, [Ruby Tuesday] agrees to work closely with RCG during
said negotiations and to fully disclose the terms of the proposed and final
settlement(s) to RCG.” (Id. at 2).
B. The USAM Audit and the General Growth Properties Settlement
Around 2001, USAM prepared an audit of Ruby Tuesday’s leases with
General Growth Properties (“General Growth”), the landlord for two Ruby
Tuesday-operated restaurants at the Mizner Park mall in Boca Raton, Florida.
(Id. ¶f 15, 19). That audit found that Ruby Tuesday had a $900,000 claim (id.
¶ 21), which General Growth disputed (id. ¶ 28).
In 2009, Ruby Tuesday and General Growth reached a settlement (the
“General Growth Settlement”) with respect to the early termination of the lease
for a closed restaurant at the Mizner Park mall. (Id. ¶ 47). Ruby Tuesday agreed
to waive the claims in the USAM audit report and, in exchange, General
Growth forgave $165,000 in back rent. Ruby Tuesday then paid RCG $82,500;
that represented RCG’s 50% share, under the RCG Agreement, of the $165,000
in back rent saved in the General Growth Settlement. (Id. ¶ 48).
C. The RCG Audit and the Simon Property Group Settlement
Around 2003, RCG prepared a lease audit involving 27 Ruby Tuesday
restaurants at shopping centers owned by Simon Property. (DSMF ¶J 15-16).
The audit report established a total claim of $1,052,000.00 against the
landlord, Simon Property. (Id. ¶ 21).
In 2009, Ruby Tuesday began negotiating with Simon Property for the
early termination of leases for seven restaurants located in Simon Property
shopping centers. (Id. ¶ 40). Simon threatened to end negotiations on the lease
terminations unless Ruby Tuesday dropped all claims based on the issues
identified in RCG’s audit report. (Id. ¶ 41).
Ruby Tuesday did drop the claims identified in the RCG audit report.
Indeed, to terminate these leases early, Ruby Tuesday paid Simon Property
$2,015,000. That payment represented 47.3% of the total future rents that
would have come due if the terminated leases had remained in effect for their
full terms. (the “Simon Property Settlement”). (Id. ¶f 42-43).
D. USAM Files Suit
On August 26L 20101 VSAM nRfilcd
cvi1 piinL in th________
Superior Court of New Jersey, Chancery Division, Essex County. The
Complaint alleged that Ruby Tuesday had failed to pay the contingent fees
owed to USAM and RCG in the wake of the Simon Property and General
Growth Settlements. It included causes of action for breach of contract, breach
of express and implied covenants of good faith and fair dealing, unjust
enrichment, and an accounting.
On September 29, 2010, Ruby Tuesday timely removed the case to this
Court. USAM is a limited liability company whose sole member, Martin C.
Mayer, is a citizen of Florida. RCG is a New Jersey corporation with its
principal place of business in New Jersey. Ruby Tuesday is a corporation
formed under the laws of Georgia with its principal place of business in
Tennessee. Because there is complete diversity of citizenship and the amount
in controversy exceeds $75,000, subject matter jurisdiction is proper. 28
U.S.C. § 1332. Venue is proper because this District encompasses the state
court where the action was originally filed. 28 U.S.C. § 144 1(a).
On January 12, 2012, Ruby Tuesday filed this Motion to Exclude Expert
Testimony and for Summary Judgment. On February 7, 201.2, USAM and RCG
filed a Cross-Motion to Exclude Expert Testimony. The motions were
administratively terminated to permit mediation, but they were restored to the
calendar on August 2, 2012.
A. Expert Testimony
Federal Rule of Evidence 702 (“Rule 702”), which covers the admissibility
of expert testimony, provides:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized
knowledge will help the trier of fact to understand the
evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and
(d) the expert has reliably applied the principles and
methods to the facts of the case.
Fed. R. Evid. 702.
“Rule 702 embodies a trilogy of restrictions on expert testimony:
qualification, reliability and fit.” Schneider ex rel. Estate of Schneider v. Fried,
320 F.3d 396, 404 (3d Cir. 2003) (citing In re Paoli R.R. Yard PCB Litig., 35 F.3d
717, 74 1-43 (3d Cir. 1994) (citing Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.s. 579 (1993))).
“Qualification refers to the requirement that the witness possess
specialized expertise.” Schneider, 320 F.3d at 404. This is interpreted liberally:
“a broad range of knowledge, skills, and training qualify an expert.” Paoli, 35
F.3d at 741. A reliable opinion is “based on ‘the methods and procedures of
science’ rather than on ‘subjective belief or unsupported speculation.” Paoli, 35
F.3d at 742 (citing Daubert, 509 U.S. at 590). Reliability is a “flexible” test.
Kumho Tire Co., Ltd. v. Carmichael, 526 U.s. 137, 141 (1999) (internal citation
omitted). Last, the expert opinion must fit the issues in the case, i.e., it must be
relevant and “assist the trier of fact.” Paoli, 35 F.3d at 742-43.
Rule 702 also requires that “[tjhe party offering the proposed expert
testimony bear the burden of establishing the admissibility of the testimony
by a preponderance of the evidence.” In re Human Tissue Products Liab. Litig.,
582 F. Supp. 2d 644, 655 (D.N.J. 2008) (citing Padillas v. Stork-Gamco, Inc.,
186 F.3d 412, 417-18 (3d Cir. 1999). The inquiry requires the court to
“examine the expert’s conclusions in order to determine whether they could
reliably follow from the facts known to the expert and the methodology used.”
Heller v. Shaw Indus., Inc., 167 F.3d 146, 153 (3d Cir. 1999).
The District Court serves as a gatekeeper to prevent expert testimony
that falls short of these requirements from reaching the jury. Daubert, 509 U.s.
at 592-95. A judge has “the same broad latitude when it decides how to
determine reliability as it enjoys in respect to its ultimate reliability
determination.” Kumho Tire, 526 U.S. at 142 (internal citation omitted)
(emphasis in original).
B. Summary Judgment
A court “shall grant summary judgment if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986) (summary judgment is appropriate where “there is no
genuine issue of material fact to be resolved and the moving party is entitled to
judgment as a matter of law”); Alcoa, Inc. v. U.s., 509 F.3d 173, 175 (3d Cir.
2007). Summary judgment is desirable because it eliminates unfounded claims
without resort to a costly and lengthy trial, Celotex, 477 U.S. at 327, but a
court should grant summary judgment only “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c).
“ummary judgment will not lie if the dispute about a material fact is
‘genuine,’ that is, if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). The burden of showing that no genuine issue of material fact exists
rests initially on the moving party. Celotex, 477 U.S. at 323. Once the moving
party has made a properly supported motion for summary judgment, the
burden shifts to the nonmoving party to “set forth specific facts showing that
there is a genuine issue for trial.” Fed. R. Civ. P. 56(e); see Anderson, 477 U.S.
at 247-48. In evaluating a summary judgment motion, a court must view all
evidence in the light most favorable to the nonmoving party. Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.s. 574, 587 (1986); Goodman v.
Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976).
Each party argues that the other’s expert testimony should be excluded
for failure to meet the standards set forth in Rule 702 and Daubert. Ruby
Tuesday also moves for summary judgment on the grounds that if USAM’s
expert is excluded, USAM cannot make a prima facie case of breach of contract.
A. Ruby Tuesday’s Motion to Exclude the Wiss Report (Chodor)
Ruby Tuesday contends that the testimony of U5AM’s damages expert,
Chodor, isnoLre1iah1e and. should he excluded. RubyTnesday
contends that (1) Chodor accepted USAM’s version of the facts without verifying
or analyzing the underlying audit data; (2) Chodor’s methodology for
calculating damages does not account for Ruby Tuesday’s alternative
explanations; and (3) Chodor’s opinions incorporate legal conclusions.
The governing standard is a flexible one. After reviewing the underlying
reports, I do not find that Chodor’s testimony must be excluded. As a basis for
his opinion, he was entitled to rely on the audits. The underlying facts are of
course subject to proof (and to attack) based on the testimony of witnesses and
documentary evidence. Chodor’s methodology for calculating damages meets
the reliability requirement of Rule 702 and Daubert. What Ruby Tuesday calls
“legal conclusions” are really this damages expert’s assumptions as to the
substance of a breach of contract claim that may (or may not) be established at
trial. Therefore, Ruby Tuesday’s motion is denied.
1. The Wiss Reports
Lawrence Chodor, U5AM’s expert, assisted by Joseph L. Ottaiano, CPA,
issued three reports. The first, entitled “Economic Damages Report,” is dated
August 15, 2011. (“Wiss Report” at 1, Ex. M to DSMF [ECF No. 15-18]). In that
Ruby Tuesday does not challenge Mr. Chodor’s qualifications or the relevance of
his testimony. Chodor appears to be well credentialed as, inter alia, an accountant and
forensic financial analyst.
Chodor and Ottaiano are affiliated with Wiss & Company, LLP. I follow the
parties in referring to this as the “Wiss Report.” For simplicity, I refer to the expert
witness as Chodor, but the substitution of Ottaiano would not alter the analysis.
first report, Chodor concludes that Ruby Tuesday’s breach of contract caused
USAM total economic damages of $1,143,683. (Id.). My analysis focuses on this
In preparing the Wiss Report, Chodor spoke to the principals of USAM
and RCG, who prepared the audits, and also reviewed and relied upon
numerous documents, including the pertinent leases, agreements, settlements,
emails and correspondence. (Id. at 8-10 (listing documents)). The report
i.e., that Ruby
assumes the validity of the allegations of contractual breach
Tuesday used the audits to bring about the Simon Property Settlement and did
not fully pursue the claims uncovered by the General Growth audit, in violation
of the parties’ agreements. (Id. at 3).
The component of USAM’s damages resulting from the Simon Property
SëttlërEènt, ascãlcurated ir the rei5oit, tOtals $776,T83.(id: at4T. To tah that
figure, Chodor started from the value of the rent payments Ruby Tuesday
would have been obligated to make over the remaining term of the cancelled
leases. This figure he discounted to a present value by applying a risk-free (20year Treasury bond) rate of return. From that discounted figure Chodor
subtracted the amount that Ruby Tuesday had already paid Simon Property in
connection with the settlement. (Id. at 3). The difference between the value of
what Ruby Tuesday would have paid on the leases and what it did pay in the
settlement amounted to $1,552,365. From this figure Chodor took 50%,
U SAM’s share under the contingent fee portion of the agreement. (Id. at 3, 4).
The component of USAM’s damages resulting from the General Growth
Settlement is calculated at $367,500. (Id.). Here, Chodor took at face value the
audit’s conclusion that Ruby Tuesday had a claim against General Growth in
the amount of $900,000, and assumed that Ruby Tuesday’s failure to pursue
that claim gave rise to liability. Pursuant to the 50% contingent fee
arrangement, USAM would have been entitled to $450,000. From that figure,
however, Chodor subtracted the $82,500 that Ruby Tuesday had already paid
USAM in connection with the General Growth settlement. (Id. at 3.4).5
Chodor issued a Supplemental Economic Damages Report dated August 23,
2011. That report adjusts the calculation of USAM’s damages upward to $1,238,745.
(Wiss Supplemental Report, at 1, Ex. 0 to DSMF [ECF No. 15-21]). This second report
differs from the first in that, for the Simon Property component, it applies a 3%
inflation factor to each of the annual expense recovery amounts, and, for the General
Growth Mizner Park leases, it adds $25,000 in claims per year for 2008, 2009 and
2010. (Id.). Chodor’s third and final report, dated October 10, 2011, responds to Ruby
2. Chodor’s Use of the Audits and Related Challenges
Ruby Tuesday argues primarily that Chodor’s opinion is invalid because
it relies on the USAM audits without verification or analysis. In Ruby Tuesday’s
view, the Agreements entitle USAM, not to a share of all savings on the relevant
leases, but only to amounts Ruby Tuesday saved as a direct result of the
audits. Ruby Tuesday also disagrees with Chodor’s use of a low, “risk-free”
discount rate to calculate the present value of future lease payments. These
errors, claims Ruby Tuesday, render Chodor’s testimony unreliable and
therefore inadmissible. I disagree.
First, I find that Chodor’s reliance on the USAM and RCG audits satisfies
the requirements of Rule 702. Such audits are no different from other sources
commonly relied on by experts in the field. (I also note that the audits were not
An “expert’s testimony must be accompanied by a sufficient factual
foundation. . . .“ Gumbs v. Int’l Harvester, Inc., 718 F.2d 88, 98 (3d Cir. 1983);
see Elcock v. Kmart Corp., 233 F.3d 734, 755 (3d Cir. 2000) (damage
calculations require a sufficient factual foundation). That foundation, however,
need not consist of admissible evidence:
An expert may base an opinion on facts or data in the case that the
expert has been made aware of or personally observed. If 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.
Fed. R. Evid. 703; see Daubert, 509 U.S. at 592 (“an expert is permitted wide
latitude to offer opinions, including those that are not based on firsthand
knowledge or observation”). To put it another way, the information relied on by
the expert need not itself satisfy the Daubert requirements. See id. at 593-95.
Tuesday’s expert reports. (Wiss Reply Report, Ex. 4 to Chodor Dep., Ex. P-i to DSMF
at 225-231 [ECF No. 15-22]). These two additional reports do not alter the analysis of
the Rule 702 issue, infra at Section III.A.2-4.
In analyzing this issue, I am additionally inclined to grant some latitude
because the sole issue is damages, as to which New Jersey law does not require
absolute precision. See, e.g., Tessman v. Grosner 23 N.J. 193, 128 A.2d 467 (1957) (“If
the evidence affords a basis for estimating the damages with some reasonable degree
of certainty, it is sufficient.”).
Here, Chodor reviewed and relied upon the USAM and RCG audits
themselves, interviews with the principals, and various documents, including
the pertinent leases, agreements, settlements, emails and correspondence. (See
Wiss Report at 8-10, Ex. M to DSMF [ECF No. 15-18]). The audits were
conducted by USAM and RCG, professionally qualified firms. Ruby Tuesday
commissioned the audits and seemingly relied upon them for its own business
purposes, including the extraction of concessions from its landlords. As
professional assessments of the validity, or not, of the landlords’ charges under
the leases, they were relevant to Chodor’s formulation of his opinion as to
damages. While Chodor concededly did not personally verify the audits, he was
not required to do so. His brief was limited: assuming the results of the audits
to be valid, he was to calculate what damages would result. Of course the
plaintiffs will have to establish liability, as well as damages, but they are
entitled to make. theirca eone. witness at a time.As USAM & RCG. point ou±,
fact witnesses will establish (at this procedural stage, I would say attempt to
establish) the foundation of the audits. Attacking the factual foundations of an
expert opinion is the ordinary stuff of cross-examination at trial. If the
plaintiffs’ proofs fail to convince the fact finder of the validity of the audits, then
Chodor’s calculations of damages may likewise fail.
Ruby Tuesday’s principal cases are distinguishable. Paoli disallowed medical
testimony based on the “plaintiff’s self-report of illness in preparation for litigation.” 35
F.3d at 762. That is not the case here the audits were prepared for Ruby Tuesday to
use in obtaining refunds from landlords for overcharges, not for the present suit. In
addition, the Wiss Reply Report explained why Chodor’s conclusions were reliable; no
such explanation existed for the testimony excluded in Paoli. See id. at 763.
In Chempal Ltd. v. Slim-Fast Nutritional Foods Int’l, Inc., an opinion from the
District of Delaware, the court barred a damages expert from testifying because, to
calculate lost profits, he blindly relied upon a third party’s sales estimates and
essentially made up estimates of yearly growth of the market. 350 F. Supp. 2d 582,
589-594 (D. Del. 2004). Chodor, by contrast, reviewed the audits and numerous other
documents, and he interviewed the individuals that prepared the audits. In addition,
USAM has indicated that its principals will testify as to the factual foundation of the
audits. Chodor’s calculation of amounts actually overcharged is a far cry from the
Chemipal expert’s estimate of hypothetical profits that would have been realized if the
company had spent a certain amount on marketing and reached its market share goal.
In In re Wagner, the court considered whether to exclude the testimony of a
forensic pathologist who relied on the opinion of another expert, a toxicologist, to
render his own opinion on the identical issue: the blood-alcohol content of the driver
who caused the fatal traffic accident. Civ. No. 06-1026, 2007 WL 966010, at *3 (E.D.
Pa. Mar. 29, 2007). The toxicologist was not available to testify as to his report. The
court noted that if the forensic pathologist were merely parroting the toxicologist’s
Second, I cannot find that that Chodor’s opinions are inadmissible
merely because they are inconsistent with Ruby Tuesday’s interpretation of the
USAM and RCG Agreements. Ruby Tuesday views the Agreements as requiring
payment only for dollar savings that were the direct result of the audits. The
relevant provision of the USAM Agreement (incorporated in the RCG
Agreement), however, is not so clearly limited. It states that the auditors’
“remuneration is contingent and based upon a realization in fact by [Ruby
predicated upon information
Tuesday] of refunds made by landlords
documented by [USAM] that overcharges in fact occurred.” (Ex. A to DSMF at
1). Moreover, the Agreements contain express and implied obligations of good
faith cooperation. The RCG Agreement appears also to contain explicit
safeguards against Ruby Tuesday’s dealing directly with the landlords to
circumvent the contingent fee obligation.
This could all mean what Ruby Tuesday says it does. It could also mean,
however, that the auditors should be paid based on any benefit Ruby Tuesday
extracted from the landlords after USAM or RCG identified overcharges. Or the
correct interpretation could be somewhere in the middle. Ultimately, whether
Ruby Tuesday is in breach of the payment provision of the Agreements is for
the fact finder to decide.
The conclusions of damages experts are quite commonly contingent upon
the establishment of liability. Chodor was not unreasonable in calculating
damages for the Simon Property Settlement based on his client’s theory of
liability, which, as I have said, remains to be established but is not
unreasonable. (See Wiss Reply Report at 4). If the plaintiffs’ interpretation of
the Agreements does not prevail, or prevails only in part, then the validity of
Chodor’s conclusions may suffer accordingly. But that is not a basis to exclude
Ruby Tuesday contends that the
renders Chodor’s testimony arbitrary and
same conclusion. In one instance, the
Tuesday allegedly used the RCG audit in
use of two different methodologies
inconsistent, but I do not reach the
Simon Property Settlement, Ruby
negotiations to obtain benefits from
opinion, his testimony would be excluded, but found that not to be the case. Id. at *4•
Because the pathologist’s findings rested on a mix of subjective analysis (i.e., the
toxicologist’s report) and other objective data, his opinion had value and therefore was
not excluded. Id. In this case, Chodor is not testifying about the same subject matter
i.e., he is not rendering an opinion on what was or was not an overcharge under the
terms of the lease. In any case, the auditors are available to testify as to their findings.
the landlord. Chodor used the amount of the settlement as a basis for his
damages calculation. As to the General Growth Settlement, the situation is
different. Defendants do not claim that Ruby Tuesday directly used the audit to
pressure the landlord. Rather, the claim is that Ruby Tuesday failed to fully
pursue its claims against the landlord, thus denying USAM its contingent
share. Different situation, different methodology. The expert’s methods may be
subject to attack, but that is not a basis to exclude his testimony entirely.
Third, I will not exclude Chodor’s testimony based on his use of a riskfree rate of return to calculate the present value of future lease payments in
connection with the Simon Property Settlement. His report states:
We do not believe that the use of Simon’s cost of capital rate in lieu
of the risk-free interest rate is appropriate. In any event, the period
catcUIäTiiI is 2OG9thiYUg1
ffictud I thëWts StVãI
2015. Based on the current interest rate environment, Simon’s
5.69% rate seem[s] high. We believe that Ruby Tuesday’s risk of
default was low and that a risk free rate is justified.
(Wiss Reply Report at 5). Chodor’s decision to use the risk-free rate of return
was not arbitrary. Current interest rates are historically low, and have been so
for some time. Chodor also noted what he viewed as Ruby Tuesday’s low risk of
default. To Chodor, a rate of 5.69% was therefore overly generous. May these
assumptions be attacked? Certainly. But they meet the standard for
admissibility set forth in Rule 702 and Daubert.
3. Ruby Tuesday’s Alternative Explanations
Ruby Tuesday argues that Chodor’s testimony is unreliable because he
does not account for factors other than the audits that may have contributed to
the Simon Property and General Growth Settlements.
Chodor addresses this critique in the Wiss Reply Report. He states that
these concurrent factors, identified in the report of Gorodesky,
address the potential mind set of a landlord in a broad sense. It is
impossible to attempt to quantify these factors or place relative
weights on them as they pertain to the [Simon Property
Settlement]. They are subjective factors and concepts for which
neither the RAS Report nor the Marcum Report can place a value.
Their exact impact on the negotiations and ultimately the
termination amount is impossible to quantify.
We note that Ruby Tuesday, a major national tenant in a real
estate environment of increasing vacancies, would likely find
Simon receptive to Ruby Tuesday’s CAM audit claims and that
Simon would be motivated to resolve the outstanding issues
equitably and not attempt to strong-arm or stonewall any
negotiation attempts by Ruby Tuesday.
(Wiss Reply Report at 5, Ex. 4 to Chodor Dep., Ex. P-i to DSMF at 229).
That is a reasonable explanation for Chodor’s exclusion of these
concurrent factors from his damages calculation. Paoli, 35 F.3d at 760.8 Once
again,-RubyTuesday ha&identifie-d pote-ntialbaseste att-aek -Chodors opinion,
not to exclude it.
4. The “Legal Conclusions” in the Wiss Report
Ruby Tuesday argues that the Wiss Report is rife with legal conclusions
that render Chodor’s testimony excludable. The contested statements boil
down to two types.
The first type of statement concerns Ruby Tuesday’s alleged breach of
the Agreements. (See Ruby Tuesday Br. at 28 [ECF No. 15-3] (listing
statements)). Such statements are not, and are not presented as, Chodor’s
expert conclusions. They are more properly viewed as assumptions regarding
liability on which Chodor based his calculation of damages. Expert opinions on
damages commonly assume liability, which must be established independently.
The second type of statement relates to the calculation of the auditors’
contingent fees. Chodor took the Agreements to mean that USAM was entitled
to 50% of any savings realized from settlements where the claims in its audit
were fully pursued. Where the claims were not fully pursued, USAM was
Magistini v. One Hour Martinizing Dry Cleaning, 180 F. Supp. 2d 584 (D.N.J.
2002), cited by Ruby Tuesday, is unhelpful here. There, the issue was the cause of the
plaintiffs leukemia. Differential diagnosis is an established expert medical procedure,
one that requires a quantitative assessment of each exposure that could have caused
the illness. Id. at 610. So far as I have been made aware, there is no corresponding
established methodology for the analysis of lease negotiations. And indeed, even Ruby
Tuesday’s expert reports merely list confounding factors, without attempting to
quantify the role that each of them played.
entitled to 50% of the value of the claims uncovered by the audit. That is a
reasonable assumption upon which to base a calculation of damages. If the
assumption does not pan out before the fact finder, Chodor’s opinion may turn
out to be worth little. But again, that is a merits issue, not an admissibility
That distinction between the threshold of admissibility and the burden of
persuasion must always be kept in mind in the Rule 702 context. “The
evidentiary requirement of reliability is not that high.” Pineda v. Ford Motor Co.,
520 F.3d 237, 247 (3d Cir. 2008 (quoting In re TMILitig., 193 F.3d 613, 665 (3d
Cir. 1999)). “While a litigant has to make more than a prima facie showing that
his expert’s methodology is reliable, we have cautioned that ‘[t]he evidentiary
requirement of reliability is lower than the merits standard of correctness.”’ Id.
(quoting Faoli, 35 F.2dat 744). That “merits standard of correctness” is for the__________
fact finder to consider and apply. Before the fact finder does so, Ruby Tuesday
will have the chance to attack USAM’s and RCG’s figures through crossexamination and the presentation of contrary evidence. See Daubert, 509 U.s.
Rule 702 permits a wide range of testimony as long as the expert is
qualified and the testimony is reliable and relevant. Chodor’s proffered
testimony meets the standard of admissibility under Rule 702. Ruby Tuesday’s
motion to exclude his testimony will therefore be denied.
B. Ruby Tuesday’s Motion for Summary Judgment
Ruby Tuesday has moved for summary judgment because, in its view,
once Chodor’s testimony is excluded, the plaintiffs cannot make an adequate
showing of damages. Without proof of damages, the plaintiffs’ cause of action
for breach of contract would be lacking an essential element.
Because I have found that Chodor’s testimony should not be excluded,
see supra III.A., the basis for Ruby Tuesday’s motion drops out. See Murphy v.
Implicito, 392 N.J. Super. 245, 265, 920 A.2d 678, 689 (App. Div. 2007).
Summary judgment in favor of Ruby Tuesday is therefore inappropriate, and
its motion is denied.
C. USAM’s Cross-Motion to Exclude Ruby Tuesday’s Expert Reports
The plaintiffs, USAM and RCG, have cross-moved to exclude Ruby
Tuesday’s proffered expert testimony, previewed in two expert reports. First,
the plaintiffs argue that the RAS Report, prepared by Ronald Gorodesky, is not
relevant because it discusses factors generally at play in landlord-tenant
negotiations without tying them to the particulars of this case. Second, the
Marcum Report, written by David Glusman, relies on the RAS Report. Once the
RAS Report is excluded, say the plaintiffs, the Marcum Report must also fall
out of the case.
The crux of the plaintiffs’ case is that Ruby Tuesday used or should have
used the USAM and RCG audits to prise favorable settlements from Simon
Property and General Growth. Ruby Tuesday, however, contends (inter alia)
that factors independent of the audits led to, or contributed to, these
settlements. Identification of such other factors would therefore be relevant to
The RAS Rept idatdSept ibefi1; 201I. RASRptt,E. Lffi
DSMF [ECF No. 15-17]). In it, Gorodesky cites seven factors that a landlord
considers when negotiating the termination of a tenant’s lease in return for a
lump sum payment. (Id. at 2-3). The Report also states that the discount a
tenant tends to receive, expressed as a percentage of total future rent due,
varies widely from 10% to 90% but is typically 40-50%. (Id. at 4). As noted by
the plaintiffs, Gorodesky does not connect these general principles to the
settlements between Ruby Tuesday and Simon Property/General Growth or to
any other fact specific to this case. In the plaintiffs’ view, this renders the
report irrelevant and inadmissible.
The Advisory Committee Notes to Rule 702 explicitly authorize an expert
opinion as to general principles:
[lit might also be important in some cases for an expert to
educate the factfinder about general principles, without ever
attempting to apply these principles to the specific facts of
the case. For example, experts might instruct the factfinder on the
principles of thermodynamics, or bloodclotting, or on how financial
markets respond to corporate reports, without ever knowing about
or trying to tie their testimony into the facts of the case. The
amendment [codifying the reliability standards in Daubert and
Kumho Tire] does not alter the venerable practice of using expert
USAM does not challenge the qualifications of Ruby Tuesday’s experts.
Glusman appears to be well credentialed as, inter alia, an accountant and forensic
financial analyst. Gorodesky is the president of a restaurant business consulting firm,
Restaurant Advisory Services, Inc.
testimony to educate the factfinder on general principles. For
this kind of generalized testimony, Rule 702 simply requires that:
(1) the expert be qualified; (2) the testimony address a subject
matter on which the factfinder can be assisted by an expert; (3) the
testimony be reliable; and (4) the testimony “fit” the facts of the
Fed. R. Evid. 702 (comments addressing 2000 Amendments) (emphasis added).
Gorodesky’s testimony fits within the principles outlined in the quoted
Comments to Rule 702. First, USAM does not challenge Gorodesky’s
qualifications; indeed, Ruby Tuesday highlights his experience in the
restaurant and real estate industries. Second, the RAS Report addresses the
factors at play in landlord-tenant lease negotiations and the amount of savings
a tëiáiit rhày aêhie ihteminatifigaIease èãrly, matters that may be helpful
to the fact finder. Third, his testimony is reliable because it is grounded in his
experience in the industry. See, e.g., Kumho Tire, 526 U.S. at 151 (Rule 702
encompasses experience-based, as well as academic, expertise). Fourth, the
general principles he recites are relevant to the case because Ruby Tuesday
alleges that factors other than the audits contributed to the Simon Property
and General Growth Settlements. Accepting arguendo for purposes of this
cross-motion that Ruby Tuesday’s view of the Agreements is correct (as I
accepted the plaintiffs’ view on the main motion), the compensation of USAM or
RCG may be reduced to the extent that other factors contributed to the
settlements with the landlords. The same caveat that applies to the plaintiffs’
reports applies here: Ruby Tuesday’s view of the Agreements might or might
not prevail; Ruby Tuesday might or might not prove, through other evidence,
that such factors did in fact influence the negotiations. But the RAS report, in
combination with other proofs, is relevant and helpful, and therefore
admissible. The cross-motion of USAM and RCG to exclude the RAS report is
The plaintiffs’ argument that the Marcum Report should be excluded is
premised on the exclusion of the RAS Report. For the reasons stated above, the
RAS Report will not be excluded. Therefore, USAM’s cross-motion to exclude
the Marcum Report is also denied.
For the reasons stated above, (1) Ruby Tuesday’s Motion to Preclude
Expert Testimony and for Summary Judgment and (2) USAM’s Cross-Motion to
Exclude Expert Testimony are DENIED.
United States District Judge
Dated: April 25, 2013
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