Hodell-Natco Industries, Inc. v. SAP America, Inc. et al

Filing 267

Memorandum Opinion and Order granting in part and denying in part 197 plaintiff's Motion in limine to preclude the testimony and opinions of Brooks Hilliard, MCM, CCP, as set forth in his expert report. Judge Lesley Wells(C,KA)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

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: CASE NO. 1:08 CV 02755
HODELL-NATCO INDUSTRIES, INC.,
:
:
Plaintiff, : MEMORANDUM OF OPINION AND
: ORDER
-vs:
:
:
SAP AMERICA, INC., et al.,
:
:
Defendant.
-----------------------------------------------------UNITED STATES DISTRICT JUDGE LESLEY WELLS
Before the Court is a Motion in Limine filed by plaintiff Hodell-Natco to preclude
the testimony and opinions of Brooks Hilliard, MCM, CCP, as set forth in his expert
report. Defendant SAP has responded in opposition. Hodell has replied. For the reasons
that follow, the motion is granted in part and denied in part.
I.
This matter is scheduled for trial to take place on 23 February 2015. The plaintiff
Hodell-Natco brought this lawsuit against defendants SAP AG and SAP America
(collectively, “SAP”) and LSi-Lowery Systems, Inc., and the IBIS Group (collectively,
LSi/IBIS). Hodell’s pending claims include fraud, fraudulent inducement, and negligent
misrepresentation against all defendants; breach of contract against SAP America; and
breach of warranty against LSi/IBIS. Hodell further maintains that at all relevant times
LSi was acting as SAP’s actual or apparent agent.

In short, this dispute arises out of an allegedly failed implementation of Enterprise
Resource Planning (“ERP”) software called Business One. SAP developed and
marketed Business One and licensed its use to Hodell. LSi/IBIS was contracted by
Hodell to implement Business One as part of a software suite that included two other
programs. Hodell maintains that the software never performed as promised and that it
suffered damages as a result.
In relation to issues of liability, SAP submits the expert report of Brooks Hilliard,
who opines on number of topics, including background information relating to the
business software industry, standard customs and practices in the industry, industry
terminology, technical concepts such as the “scalability” of a software product, and
software marketing, among other things. Plaintiff Hodell maintains that Mr. Hilliard
should be precluded from testifying at trial. Hodell variously argues that the testimony is
irrelevant; that it improperly summarizes evidence; that Mr. Hilliard opines on credibility;
and that the testimony supplants the role of the jury.
II.
The purpose of a motion in limine is “to ensure evenhanded and expeditious
management of trials by eliminating evidence that is clearly inadmissible for any
purpose.” Indiana Ins. Co. v. Gen. Elec. Co., 326 F. Supp. 2d 844, 846 (N.D. Ohio
2004).
Rule 702 of the Federal Rules of Evidence permits testimony based on
“scientific, technical, or other specialized knowledge” by experts qualified by
“knowledge, skill, experience, training, or education” if the testimony is both relevant
and reliable. See Fed. R. Evid. 702. The trial judge must act as a gatekeeper,
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admitting only that expert testimony which is relevant and reliable. Daubert v. Merrell
Dow Pharms., Inc., 509 U.S. 579, 589 (1993). As a gatekeeper, the trial judge has
discretion in determining whether a proposed expert’s testimony is admissible based on
whether the testimony is both relevant and reliable. Johnson v. Manitowoc Boom
Trucks, Inc., 484 F.3d 426, 429 (6th Cir. 2007). “In short, under Daubert and its
progeny, a party proffering expert testimony must show by a preponderance of proof
that the expert whose testimony is being offered is qualified and will testify to scientific
knowledge that will assist the trier of fact in understanding and disposing of relevant
issues.” Sigler v. Am. Honda Motor Co., 532 F.3d 469, 478 (6th Cir. 2008) (citing Pride
v. BIC Corp., 218 F.3d 566, 578 (6th Cir. 2000)).
III.
Testimony as to Industry Practices, Customs, and Standards of Care
Hodell takes issue with those portions of Mr. Hilliard’s report which describe
customary industry practices and standards of care that apply in the software industry.
The Court agrees with Hodell that these portions of the report are irrelevant to the
issues that must be decided by the jury. These include a description of the “typical
responsibilities of the parties” to an ERP software implementation; an explanation of the
standard industry practice whereby software companies “partner” with software
implementation firms (Opinion #1); a discussion of how Hodell and LSi’s method for
implementing Business One was inconsistent with normal industry procedures (Opinion
#2); an explanation how LSi’s and Hodell’s failure to heed numerous technical warnings
was inconsistent with customary practices in the business software industry (Opinion
#5); an explanation how Hodell’s testing of the software did not meet industry standards
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(Opinion #6); an explanation how Hodell’s use of outdated, inadequate, and
underpowered IT infrastructure did not meet industry standards (Opinion #7); and an
explanation how the support provided by SAP after “go-live” of Business One was
consistent with the normal practices and standards of care in the industry (Opinion #8).
Based on Mr. Hilliard’s conclusions, it is readily apparent that SAP would like to
establish that Hodell, having allegedly failed to adhere to industry standards while
implementing Business One, is itself to blame for the software’s unsatisfactory
performance. However, it is not readily apparent how a jury’s knowledge of these
industry standards would assist it in deciding the claims and defenses that will actually
be presented to it for resolution. SAP generally argues that “each of Mr. Hilliard’s
opinions is directly related to the claims and defenses at issue.” But which claims? And
which defenses? And how are they related? SAP doesn’t say precisely. There are a
variety issues for the jury, but none of them self-evidently require knowledge of an
industry custom or standard of care for their resolution.
For instance, whether LSi was SAP’s apparent agent depends on proof that SAP
clothed LSi with the authority to act on SAP’s behalf and that Hodell reasonably
believed that LSi had such authority. It is not clear how knowledge of the practice of
“partnering” in the business software industry would assist the jury in assessing and
understanding the evidence when it decides whether SAP took steps that led Hodell to
justifiably believe that LSi was SAP’s agent. The defendants’ agency status will be
determined based on the evidence, against the standards of agency under Ohio law,
not with reference to an industry standard described by Mr. Hilliard. This is not the
“either-or” situation that SAP seems to suggest it is, where the jury will either find that
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the parties’ “relationships here were consistent with industry norms” or “LSi was SAP’s
agent.” (SAP opposition, p. 12). This is a false choice. Ultimately, the jury will be
instructed on the law of agency, and it will decide based on the evidence whether LSi
was SAP’s agent. Instead of helping, the industry custom described by Mr. Hilliard
would more likely confuse the jury as it attempts to answer this question.
The same is true of the other industry standards described by Mr. Hilliard. SAP
fails to sufficiently explain how any of them relate to the claims and defenses in this
case. The plaintiff’s other claims include fraudulent or negligent misrepresentation;
breach of contract; breach of warranty; and the question of punitive damages. SAP fails
to explain how any of these issues would be resolved based on whether a standard of
care has been met. This is not a negligence case, where the cause of action necessarily
requires an understanding of the applicable standard of care. Further, although the jury
must ultimately decide whether SAP adhered to the applicable standard of care when it
represented the capabilities of Business One to Hodell, it is unclear how any of the
standards described by Mr. Hilliard would assist the jury on this score. In sum, it is not
apparent, and SAP fails to adequately describe, how an understanding of any industry
standard of care fits the issues that the jury must actually decide.
SAP vaguely asserts that these industry customs and standards would assist the
jury in decidening the “central question of who is responsible for the alleged failed
implementation.” The Court would, perhaps, accept this argument if there were an
active question of comparative negligence in this case, but Hodell’s negligence claim
was dismissed long ago. SAP has not made the case that comparative negligence is a
recognized defense to any of the claims that are active in this case. The jury will not be
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called upon to apportion responsibility for the allegedly failed implementation of
Business One. As such, the jury will not be required to gauge the parties actions against
any standard of care in order to determine which of them was responsible. Furthermore,
after due consideration, the Court concludes that SAP has failed to establish that any of
Mr. Hilliard’s industry standard testimony would assist the jury in wrestling with any of
SAP’s stated defenses.
SAP cites a number of cases to support its contention that expert testimony as to
standard industry practices is admissible in a case such as this. The Court is not
persuaded, as these cases are inapposite. First, in K & D Distributors, Ltd. v. Aston Grp.
(Michigan), Inc., 354 F. Supp. 2d 761, 765 (N.D. Ohio 2005), a seller of custom
computer software warranted to the buyer that it would complete the work “in a
professional manner.” The buyer claimed breach of warranty on the ground that the
seller failed to perform the work in accordance with the agreement. The court
determined that expert testimony was required on an ultimate fact in issue, i.e. whether
the seller performed the work “in a professional manner.” The court reasoned that
because “the parties contracted for a specific duty of care,” resolution of the issue
required “evidence of what a similar professional would have done under like
circumstances.” The court concluded that an expert was necessary because “[t]he
conduct of a professional under these circumstances is not within the jury’s general
knowledge and experience.” Id. at 766. K & D Distributors is plainly distinguishable from
the present case because SAP cites no language from any of the contracts indicating
that the parties agreed to act pursuant to a standard of care. Nor does SAP cite contract

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language that would otherwise require an understanding of an industry standard in
order to ascertain the meaning of that contract language.
In Brown v. Wal-Mart Stores, Inc., 198 F.3d 244 (6th Cir. 1999), an injured
plaintiff brought a negligence claim against Wal-mart after an aerosol can fell off a store
shelf and struck her in the eye, causing severe and permanent damage. A panel of the
Sixth Circuit affirmed the trial court’s decision to permit expert testimony that the
shelving practices at Wal-mart were not within the accepted industry safety standard.
Brown is distinguishable from the present case. One of the necessary elements of a
negligence claim is breach of the applicable standard of care. As such, it was helpful to
the jury in Brown to understand the applicable standard of care. In the present case,
there is no negligence claim, and, as already discussed, SAP cites no issue whose
resolution would turn on a jury’s understanding of customs and standards in the
business software industry.
McGowan v. Cooper Industries, Inc., 863 F.2d 1266, 1271 (6th Cir. 1988), is
similarly inapposite. McGowan, like Brown, was a negligence case, which does not
support SAP’s position.
The Court concludes that Mr. Hilliard’s testimony as to the various industry
practices and standards of care in the business software industry is irrelevant to the
issues the jury must decide. Therefore, Hodell’s motion will be granted as to Mr.
Hilliard’s description of the “typical responsibilities of the parties” to an ERP software
implementation; his explanation of the standard industry practice whereby software
companies “partner” with software implementation firms (Opinion #1); his discussion of
how Hodell and LSi’s method for implementing Business One was inconsistent with
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normal industry procedures (Opinion #2); his explanation how LSi’s and Hodell’s failure
to heed numerous technical warnings was inconsistent with customary practices in the
business software industry (Opinion #5); his explanation how Hodell’s testing of the
software did not meet industry standards (Opinion #6); his explanation how Hodell’s use
of outdated, inadequate, and underpowered IT infrastructure did not meet industry
standards (Opinion #7); and his explanation how the support provided by SAP after
“go-live” of Business One was consistent with the normal practices and standards of
care in the industry (Opinion #8).
The meaning of the term “Business Partner”
As indicated above, Hodell holds the position that LSi was acting as an actual or
apparent agent of SAP. Hodell contends that SAP’s references to LSi as its “business
partner” supports this position. In his report, Mr. Hilliard opines on the meaning of the
term “business partner” in the context of the software industry. Hodell argues that Mr.
Hillard should not be permitted to testify as to the legal significance of this term.
The Court agrees with Hodell that Mr. Hillard may not testify on a question of law.
Chavez v. Carranza, 559 F.3d 486, 498 (6th Cir. 2009) (“An expert opinion on a
question of law is inadmissible.”). Therefore, insofar as Mr. Hillard might testify as to the
legal signficance of the term “business partner” Hodell’s motion is granted. However,
this is not to say that Mr. Hillard is precluded from offering his opinion as to the meaning
of the term “business partner” as the term is understood within the software industry. An
expert witness may offer testimony defining terms of art, science, or trade. See Ed
Schmidt Pontiac-GMC Truck, Inc. v. DaimlerChrysler Motors Co., LLC, No.

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3:04CV7621, 2008 WL 668242, at *3 (N.D. Ohio Mar. 4, 2008). Therefore, Hodell’s
motion is denied in the latter respect.
“Employees” vs. “Users”
An SAP Business One marketing brochure states that “SAP Business One
targets organizations with . . . five to 500 employees.” The parties debate whether the
word “employees” refers to the number of users of the software or the number of
employees in a company. As Hodell sees it, the word “employee,” as it is used in the
above sentence is equivilent to the word “user.” On this basis, Hodell claims that SAP
misrepresented the types of companies for which Business One was suitable.
In his report, SAP’s expert offers an opinion as to the meaning of the terms
“employees” and “users” as those terms are understood in the software industry.
According to Mr. Hilliard, the word “user” is a term of art that is distinct from the word
“employee.”
Hodell argues that Mr. Hilliard’s opinion on this subject is unhelpful and irrelevant.
The Court disagrees. As noted, one of Hodell’s claims in this case is that SAP
misrepresented the number of users that SAP Business One could accommodate.
Bearing on this claim is the meaning of the words “employee” and “user” as those words
are understood in the software industry. Expert testimony on the meaning of terms of art
is admissible. Therefore, Mr. Hilliard’s opinion on this issue is relevant and admissible.
Opinions 3 & 4
In his third and fourth opinions, Mr. Hilliard offers a rebuttal to the opinion of
Hodell’s expert, Mr. Gümbel. Specifically, in the third opinion, Mr. Hilliard opines that
“there is no supportable basis for Mr. Gümbel’s assertion that SAP’s Business One ERP
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Software was incapable of scaling up to support a business the size of Hodell.” And in
the fourth opinion, he concludes, “[a]lthough the SAP Business One software had a
marketing focus on smaller companies, that does not imply that it was incapable of
running satisfactorily for companies the size of Hodell.”
Hodell maintains that these opinions are unhelpful to the jury because they are
merely a summary of fact evidence without any of Mr. Hilliard’s own analysis. While the
Court acknowledges that portions of the third and fourth opinions include a recitation of
fact evidence, Mr. Hilliard does offer technical knowledge that would be helpful to the
jury on relevant issues. In particular, he defines scalability and offers an opinion calling
into question Mr. Gümbel’s assertion that Business One was not scalable to Hodell’s
needs. Mr. Hilliard opines that Mr. Gümbel’s opinion is suspect because it favors
theoretical factors over a more reliable metric -- actual measured results.
Mr. Hilliard takes issue with Mr. Gümbel’s opinion that Business One’s alleged
performance issues resulted from its “two-tiered architecture.” Mr. Hilliard notes that
many major ERP software products using “two-tiered architecture” will support more
than one-hundred users with satisfactory response times.
Mr. Hilliard offers insight into the manner in which the response time of Business
One was measured, contending that extended response times occurred as a result of
the placement of orders with hundreds of line items. Mr. Hilliard offers reasons why test
cases involving hundreds of line items are not representative of the software’s
capabilities.
Mr. Hilliard offers a rebuttal to Mr. Gümbel’s assertion that SAP’s marketing of
Business One to customer’s with fewer than 70 users supports the proposition that the
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software was not scalable. Mr. Hilliard contends that in his experience as a marketing
executive for computer companies, “there are numerous reasons why a technology
business may target a particular market for one of its products that have little to do with
the inherent capabilities of the product.” Mr. Hilliard goes on to offer some of those
reasons.
Mr. Hilliard should not be precluding from offering a counterpoint to Mr. Gümbel’s
opinion as to Business One’s technical limitations. Therefore, Hodell’s motion is denied
with respect to Mr. Hilliard’s third and fourth opinions.

IV.
For the reasons stated above, Hodell’s motion in limine is granted in part and
denied in part (resolving Doc. 197). Specifically, the motion is granted as to Mr. Hilliard’s
explanation of the various standards of care in the business software industry (including
Opinions 1-2, 5-8 and his description of the “typical responsibilities of the parties” to an
ERP software implementation).
The motion is denied with respect to Mr. Hilliard’s third and fourth opinions; his
testimony regarding the terms “users” and “employees”; and his testimony regarding the
term “business partner.”
IT IS SO ORDERED.
/s/ Lesley Wells
UNITED STATES DISTRICT JUDGE
Date: 26 January 2015

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