SECURITY AND DATA TECHNOLOGIES, INC. v. SCHOOL DISTRICT OF PHILADELPHIA et al

Filing 221

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MITCHELL S. GOLDBERG ON 12/20/2016. 12/20/2016 ENTERED AND COPIES E-MAILED.(kp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
__________________________________________
:
SECURITY and DATA
:
TECHNOLOGIES, INC.,
:
CIVIL ACTION
:
Plaintiff,
:
:
v.
:
No. 12-2393
:
SCHOOL DISTRICT OF PHILADELPHIA,
:
et al.,
:
:
Defendants.
:
:

Goldberg, J.

December 20, 2016
Memorandum Opinion

Following a six day trial, a jury determined that Plaintiff, Security and Data
Technologies, Inc. (“SDT”) was denied a multi-million dollar contract with the School District
of Philadelphia on the basis of race and in violation of 42 U.S.C. § 1981. The jury found the
School District of Philadelphia and its former Superintendent Dr. Arlene Ackerman liable for
$2,335,000.1
Presently before me is Defendants’ renewed motion for judgment as a matter of law or, in
the alternative, a new trial. In their motion, Defendants argue that (1) SDT, a white owned
corporation, had not acquired a racial identity, and therefore, cannot bring a claim under 42
U.S.C. § 1981; (2) the testimony of SDT’s damages expert should have been stricken as
unreliable; and (3) the School District cannot be held liable for the actions of Dr. Ackerman
under 42 U.S.C. § 1983. As Defendants’ arguments are simply a rehash of issues previously
presented and considered, the motion will be denied.
1

A third Defendant, the School Reform Commission (“SRC”), was found not liable.
1

I.

PROCEDURAL HISTORY
SDT brought claims against the School District, its governing body, the School Reform

Commission (“SRC”), and its former Superintendent, Arlene Ackerman pursuant to 42 U.S.C.
§§ 1981, 1983. On November 4, 2015, I denied Defendants’ motion for summary judgment,
ruling that genuine issues of material fact existed as to SDT’s claims.
Prior to trial, I held a hearing on Defendants’ motion challenging the admissibility of
SDT’s damages expert, John Maloney. After hearing Maloney’s testimony and argument from
the parties, I concluded that Maloney’s proposed testimony satisfied the standards for
admissibility set by Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals,
Inc., 509 U.S. 579 (1993).
Following trial, SDT filed a motion for attorney’s fees pursuant to 42 U.S.C. § 1988. That
motion is addressed in a separate opinion. Defendants then filed the instant renewed motion for
judgment as a matter of law or, in the alternative, a new trial.
II.

LEGAL STANDARD
A.

Renewed Judgment as a Matter of Law

Federal Rule of Civil Procedure 50(a) provides that the court may grant a motion for
judgment as a matter of law if “the court finds that a reasonable jury would not have a legally
sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P. 50(a)(1). A
renewed motion for judgment as a matter of law may be granted only if “the record is critically
deficient of that minimum quantity of evidence from which a jury might reasonably afford
relief.” Trabal v. Wells Fargo Armored Serv. Corp., 269 F.3d 243, 249 (3d Cir. 2001) (quotation
marks and citations omitted).

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“Entry of judgment as a matter of law is a sparingly invoked remedy, granted only if,
viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of
every fair and reasonable inference, there is insufficient evidence from which a jury reasonably
could find liability.” Marra v. Philadelphia Hous. Auth., 497 F.3d 286, 300 (3d Cir. 2007). When
conducting this “narrow inquiry,” courts “must refrain from weighing the evidence, determining
the credibility of witnesses, or substituting our own version of the facts for that of the jury.” Id.
B.

New Trial

Following a jury trial, the court may “grant a new trial on all or some of the issues--and
to any party . . . for any reason for which a new trial has heretofore been granted in an action at
law in federal court.” Fed. R. Civ. P. 59(a).
III.

DISCUSSION
At the close of SDT’s case-in-chief and at the conclusion of all evidence, Defendants

moved for judgment as a matter of law on the basis that (1) SDT ‘s section 1981 claim fails
because SDT had not established that it had acquired a racial identity; (2) SDT’s expert
testimony should have been stricken as it was unreliable and, therefore, inadmissible under
Daubert and Federal Rule of Evidence 702 and, had such testimony been stricken, SDT would
have been unable to offer any proof of actual injury; and (3) there was no evidence upon which
to find the School District liable for the actions of Dr. Ackerman under 42 U.S.C. § 1983. I
denied Defendants’ motion in its entirety.
In the instant motion, Defendants renew these three arguments and again seek judgment
as a matter of law.

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A.

Racial Identity for Section 1981 Purposes

Defendants first argue that SDT did not establish that it has a racial identity and, thus,
Defendants are entitled to judgment as a matter of law on SDT’s section 1981 claim. Defendants
urge that a corporation only acquires a racial identity for section 1981 purposes where (1) the
majority of its shareholders consist of one race and (2) it has been “certified as a corporation
with a racial identity.” (Defs.’ Mot. pp. 7-8.) Defendants cite to Thinket Ink Information
Resources, Inc. v. Sun Microsystems, Inc., 368 F.3d 1053 (9th Cir. 2004) as support for this twopart test.
Defendants raised this argument in their motion for summary judgment. In denying that
motion, I disagreed with Defendants’ reading of Thinket and held that the overwhelming
majority of precedent recognizes that a corporation can bring a section 1981 claim if it has
acquired a racial identity or if it has suffered racial discrimination. Sec. & Data Techs., Inc. v.
Sch. Dist. of Philadelphia, 145 F. Supp. 3d 454, 464 (E.D. Pa. 2015). I concluded that the
broader formulation I adopted was consistent with the plain language of section 1981 and
furthers section 1981’s purpose of providing redress for racial discrimination. Id. at 464-65.
Nothing presented in Defendants’ instant motion demonstrates that that conclusion was
erroneous. The trial record contains more than sufficient evidence on which a reasonable fact
finder could conclude that SDT acquired a racial identity and/or suffered racial discrimination.
B.

SDT’s Damages Expert

Next, Defendants argue that SDT’s expert, John Maloney, should not have been
permitted to testify because his opinion “was nothing more than a CPA prattling off made-up
numbers founded upon multiple layers of unreliable speculation.” (Defs.’ Mot. p. 12.)
Defendants urge that if Maloney had not been permitted to testify, SDT would have been unable

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to prove that it sustained any actual injury and, accordingly, the section 1981 claim would have
been dismissed.2
Federal Rule of Civil Procedure 702 governs the admissibility of expert testimony, and
states:
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 methods; and
(d) the expert has reliably applied the principles and methods to the facts
of the case.
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)
(quoting In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 741-43 (3d Cir. 1997)). In evaluating
whether an expert opinion is admissible, the district court acts as a gatekeeper, excluding opinion
testimony that does not meet these requirements. Id. The burden is on the party offering the
evidence to establish admissibility by a preponderance of the evidence. Padillas v. Stork-Gamco,
Inc., 186 F.3d 412, 418 (3d Cir. 1999).
In considering whether an expert’s method is reliable, courts should consider: (1) whether
it is based upon testable hypotheses; (2) whether the method has been subject to peer review; (3)
the known or potential error rate; (4) “the existence and maintenance of standards controlling the
2

On the issue of lost profits, SDT also presented the testimony of Ken Spressart, SDT’s Vice
President of Sales. It appears that the jury relied on Spressart’s testimony when assessing
damages. (See infra note 2.) This fact undercuts Defendants’ argument that SDT would have
been unable to prove that it sustained any actual injury had Maloney’s testimony been excluded.
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technique’s operation”; (5) whether it is generally accepted; (6) the relationship of the technique
to other methods that have been deemed reliable; (7) the expert’s experience or qualification with
the technique or method; (8) non-judicial uses the method has been put to; and (9) all other
relevant factors. In re Paoli, 35 F.3d at 742 n.8. The reliability requirement is not to be applied
“too strictly” and is satisfied as long as the expert has “good grounds” for his or her opinion.
Holbrook v. Lykes Bros. S.S. Co., 80 F.3d 777, 784 (3d Cir. 1996). An expert’s opinion is
supported by good grounds if it is “based on the ‘methods and procedures of science’ rather than
on ‘subjective belief or unsupported speculation.’” Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d
Cir. 2000).
In support of their argument that Maloney should not have been permitted to testify under
Daubert and Rule 702, Defendants argue that the data Maloney analyzed and the methodology he
applied to that data were unreliable. I note that Defendants largely raised these same arguments
prior to trial in their Daubert motion and, for the reasons discussed below, nothing in the instant
motion convinces me that my previous rejection of these arguments was erroneous.
i.

Unreliable Data

Maloney arrived at his damages number by calculating a median profit margin from
SDT’s other construction projects during 2010 and 2012. After removing the ten projects with
the lowest profit margins and the ten projects with the highest profit margins during those years,
Maloney determined that the median profit margin of the remaining fifteen projects was
approximately 29%. After subtracting $75,000 for increased “general and administrative”
expenses, Maloney applied the 29% median profit margin to the value of the actual contract
awarded to IBS. Based on the foregoing, Maloney determined that SDT would have netted at
least a $2.1 million profit from the contract at issue.

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According to Defendants, Maloney’s testimony and report should have been excluded
because his opinion was based on “speculative facts” rather than actual information regarding the
project as performed by IBS. For example, Defendants note that Maloney’s 29% profit margin
figure was based on data concerning projects that were still in progress and that profitability can
change throughout the life of a project. Defendants also argue that Maloney failed to account for
the fact that the prior contracts on which he relied varied in size and type. Defendants contend
that Maloney should have premised his analysis on data about the actual project as IBS
completed it or Maloney should have created a detailed cost estimate for the actual project.
I rejected these exact arguments after a Daubert hearing. As I previously explained,
Defendants’ insistence that Maloney should have considered the facts of the project as IBS
actually performed the project assumes that SDT would have performed the job the same way
that IBS did. (See Trial Tr. 9:12-21, June 21, 2016.) I noted that Maloney explained that
companies can have widely different methods for accomplishing the same project and, therefore,
the profit margins on a particular project may vary from company to company. (Id.) Nothing in
Maloney’s testimony at trial or Defendant’s motion convinces me that Maloney’s testimony
should have been excluded because he failed to premise his analysis on data concerning IBS’
execution of the project.
Additionally, I previously concluded and remain convinced that the other issues raised by
Defendants concerning the data on which Maloney relied go to weight rather than admissibility.
In reaching this conclusion after the Daubert hearing, I explained that Defendants were free to
cross examine Maloney on his failure to obtain a cost estimate or the significance of the fact that
he primarily analyzed the profitability of uncompleted projects. (Id. at 9:5-11.) “Vigorous crossexamination, presentation of contrary evidence, and careful instruction on the burden of proof

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are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert,
509 U.S. at 596. In fact, counsel for Defendants conducted a lengthy cross-examination of
Maloney regarding the data on which he relied.
ii. Methodology
In the instant motion, Defendants again object to Maloney’s methodology and urge that
this testimony should have been stricken. After careful consideration of his report and the
testimony he gave at the Daubert hearing, I concluded that Maloney had good grounds for his
analysis. I noted that he assessed SDT’s past construction contracts, the associated profit
margins, calculated an average rate of profit, deducted increased expenses and applied the
resulting profit margin to the value of the actual contract awarded to IBS.
Maloney also testified that the 29% figure he calculated was consistent with other
analyses he did of the profitability of SDT’s past contracts with the School District and SDT’s
past contracts in general. Importantly, Maloney also explained that the methodology he
employed in calculating SDT’s damages was the same methodology he uses when assisting
companies in assessing the profitability of potential projects. Lastly, I found Maloney’s
explanation regarding the costs he deducted to be reasonable. Maloney offered a sound basis for
his conclusion that other than general insurance and office expenses SDT’s general and
administrative expenses would not increase if it had been awarded the project contract. In sum, I
remain convinced that the assessment of past profitability of an established business like SDT is
a reliable basis for estimating lost profits and Maloney’s application of this methodology
satisfied the requirements for admissibility.
During the Daubert proceedings, I rejected Defendants’ argument that Maloney’s
testimony was akin to the expert testimony found to be inadmissible in JMJ Enterprises, Inc. v.

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Via Veneto Italian Ice, Inc., 1998 WL 175888 (E.D. Pa. Apr. 15, 1998) and Legendary Art, LLC
v. Godard, 888 F. Supp. 2d 577 (E.D. Pa. 2012). Nonetheless, Defendants have renewed their
argument that JMJ Enterprises and Legendary Art demonstrate that Maloney’s testimony should
have been excluded.
As I previously explained, in JMJ Enterprises, the district court concluded that the
testimony of plaintiff’s damages expert was inadmissible based on multiple deficiencies not
present in Maloney’s testimony. (See Trial Tr. 9:22-10:11, June 21, 2016.) In JMJ Enterprises,
the district court found the expert’s testimony to be inadmissible because (1) the expert knew
“very little” about the relevant industry, (2) he based his conclusions on his experience alone,
and (3) he had no explanation for why he accounted for certain expenses but not others. 1998
WL 175888, at *8-10. As previously noted, Maloney has extensive experience in the
construction industry, based his opinion on data concerning SDT’s other projects, not just his
experience and offered an adequate explanation for his decision to account for particular
expenses. (Trial Tr. 9:22-10:11, June 21, 2016.) For these reasons, I remain convinced that JMJ
Enterprises is distinguishable and does not demonstrate that Maloney’s testimony should have
been stricken.
Likewise, in Legendary Art, the plaintiff’s damages expert primarily relied upon business
plans and profit projections developed by unknown third-parties who did not articulate the
methodology they had used to arrive at the projections. The district court excluded the expert’s
testimony because he failed to independently verify the methods or reasoning underlying the
profit projections which formed the “linchpin” of his opinions and there was no evidence
regarding how those projections had been created. 2012 WL 3550040, at *3-5. During the
Daubert hearing, I concluded that the defects motivating the court’s decision to exclude the

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expert’s testimony in Legendary Art were not present in Maloney’s testimony. Maloney did not
merely parrot an unknown third-party’s profit projections. Rather, he calculated a net profit
margin based on SDT’s historical profitability data. In doing so, he accounted for outliers as well
as increased costs. Both the data on which he relied and the methodology he applied are
sufficiently reliable. As such, his testimony was properly admitted at trial. Nothing in
Defendants’ motion or Maloney’s testimony convinces me that Legendary Art compels a
different result. (Trial Tr. 10:12-10:23, June 21, 2016.)3
C.

Municipal Liability

For the third time, Defendants seek a determination that the School District cannot be
held liable for the actions of Dr. Ackerman. Defendants raised this argument at summary
judgment, in their motion for judgment as a matter of law during trial and again in the instant
motion.
Under Monell v. Department of Social Services, 436 U.S. 658 (1978), a municipality may
be held liable for the constitutional torts of its employees in one of three ways: (1) if its
employee “acted pursuant to a formal government policy or a standard operating procedure long
accepted within the government entity;” (2) “when the individual has policy making authority
3

In its opposition to the instant motion, SDT argued that any supposed error in admitting
Maloney’s testimony was harmless because it appears that the jury premised its damages award
on the testimony of Spressart.
Spressart testified that, based on his experience and review of the contract, he would have
expected SDT’s profit margin to have been between $840,000-$1,000,050 on labor, between
$542,500-$620,000 on professional services and between $612,500 and $875,000 on materials.
SDT states that it appears that the jury accepted Spressart’s estimates of $840,000 on labor,
$620,000 on professional services and $875,000 on labor because only that combination of
Spressart’s estimates totals the $2,335,000 damages award the jury returned.
Although I agree with SDT that the jury does appear to have based its award on Spressart’s
testimony, it is unnecessary to resolve this question because I have concluded that the decision to
admit Maloney’s testimony was proper.
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rendering his or her behavior an act of official government policy;” or (3) “if an official with
authority has ratified the unconstitutional actions of a subordinate, rendering such behavior
official for liability purposes.” McGreevy v. Stroup, 413 F.3d 359, 367 (3d Cir. 2005).
i.

Formal Policy or Standard Operating Procedure

Defendants argue that no evidence was introduced at trial to support a finding that there
was a “formal policy or standard operating procedure by which the School District selected
minority-owned prime contractors over majority-owned prime contractors.” (Defs.’ Mot. p. 19.)4
According to Defendants, the jury heard only “stray comments made by the SRC about
identifying qualified minority contractors.” (Id. at 20.) Lastly, Defendants urge that the policy
and custom of the School District was set forth in its anti-discrimination policy, which forbids
preferential treatment based on race in contract decisions.
Contrary to Defendants’ characterization of the record, multiple witnesses credibly
testified at trial that, throughout 2010, members of the SRC repeatedly admonished School
District staff to increase contract awards to minority owned businesses despite the fact the
School District was already exceeding the minority hiring goals established by the City of
Philadelphia. For example, Francis X. Dougherty, Deputy Chief Business Officer for Operations
at the School District, testified that increasing minority participation above and beyond the
established goals was a “constant theme” at every SRC meeting. SRC Chairman Robert Archie
corroborated Dougherty’s testimony. Eric Mayes, a reporter for the Philadelphia Tribune,

4

I agree with SDT that Defendants’ articulation of the policy as specifically tied to prime
contracts rather than contracts in general is inconsistent with SDT’s theory at trial and the
evidence SDT adduced in support thereof. SDT argued “that there was a policy adopted by the
SRC and the School District that authorized the increase of minority contracting above goals
established by the City of Philadelphia, which in turn reduced contracts to ‘majority’/whiteowned corporations.” This theory of the policy was reflected in the instructions given to the jury.
11

testified via video that Dr. Ackerman explained to him that she “interjected” herself into the
contract decision to follow the SRC’s directives.
There was more than sufficient evidence introduced at trial to establish that the decision
to deselect SDT and award the contract to IBS was made pursuant to the School District’s and
the SRC’s policy or standard operating procedure of awarding contracts on the basis of race and
outside of the goals established by the City of Philadelphia. This alone is sufficient to support the
jury’s verdict against the School District. That said, I will nonetheless consider whether the trial
record also contains sufficient evidence to support a verdict against the School District pursuant
to the policy-making method of proving municipality liability.
ii.

Policy Making Authority

Regarding the second method for proving liability under Monell, a municipality will be
liable when the individual who took the challenged action “has policy making authority
rendering his or her behavior an act of official government policy.” McGreevy, 413 F.3d at 367
(citing Pembaur v. Cincinnati, 475 U.S. 469, 480-81 (1986). “A policy-maker is an official who
has final, unreviewable discretion to make a decision or take action.” McGreevy, 413 F.3d at
369, citing Kneipp v. Tedder, 95 F.3d 1199, 1213 (3d Cir. 1996). “The identification of officials
who possess final policymaking authority with regard to a given act is an issue of state or local
law,” and “the determination as to who is a decisionmaker for the purposes of § 1983 liability is
not a decision for the jury, but is for the court to decide as a matter of law.” Dolly v. Borough of
Yeadon, 428 F. Supp. 2d 278, 284 (E.D. Pa. 2006).
In the instant motion, Defendants again argue that the SRC, not Dr. Ackerman, was the
final policymaker with respect to the decision to award IBS the contract. At summary judgment,

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Defendants raised the identical argument. Defendants again cite to a Pennsylvania statute that
provides:
The affirmative vote of a majority of all the members of the board of school
directors in every school district, duly recorded, showing how each member
voted, shall be required in order to take action on the following subjects:...
Entering into contracts of any kind, including contracts for the purchase of fuel or
any supplies, where the amount involved exceeds one hundred dollars ($100).
24 Pa. Cons. Stat. Ann. § 5–508. In response to both the motion for summary judgment and the
instant motion, SDT pointed out that its claim is that Dr. Ackerman blocked SDT’s ability to
form a contract by exercising her authority as Superintendent to decide what was and was not
presented to the SRC for approval. The trial record amply supports this position.
In further support, SDT relies on a School District policy, implemented pursuant to a
state law allowing the SRC to delegate responsibilities, that provides “[t]he Superintendent or
designee shall develop and present to the SRC for its approval district safety plans that addresses
[sic] school safety issues and includes applicable requirements of law and regulations.” (Pl.’s
Resp. pp. 23-24.) Dr. Ackerman’s conduct in deselecting SDT as a recipient of the school safety
contract fits within this policy.
Based on the foregoing, I concluded that SDT established that Dr. Ackerman was the
final policy maker with respect to what contract resolutions, especially those involving safety
issues, were presented to the SRC for consideration. Sec. & Data Techs., Inc., 145 F. Supp. 3d at
468–69. Nothing in Defendants motion or the evidence introduced at trial calls that conclusion
into question.
iii.

Ratification

Having found that there is sufficient evidence under the first two methods of establishing
municipal liability, I need not resolve the parties’ arguments regarding ratification.

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IV.

CONCLUSION
For the foregoing reasons, Defendants’ motion will be denied in its entirety. An

appropriate Order follows.

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