Feld Motor Sports, Inc. v. Traxxas, LP

Filing 120

MEMORANDUM OPINION AND ORDER - GRANTING IN PART AND DENYING IN PART 60 SEALED MOTION To Strike the Expert Testimony of Douglas Edwards filed by Traxxas LP, GRANTING IN PART AND DENYING IN PART 61 SEALED MOTION to Strike Expert Report and Testimony of Sidney Blum filed by Feld Motor Sports, Inc., DENYING 62 SEALED MOTION to Strike Expert Report and Testimony of Kevin Hetmanski filed by Feld Motor Sports, Inc.. Signed by Judge Amos L. Mazzant, III on 8/7/2015. (baf, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

FELD MOTOR SPORTS, INC.

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v.

TRAXXAS, LP

CASE NO. 4:14-CV-543
Consolidated with
CASE NO. 4:14-CV-463
Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court are Defendant Traxxas, LP’s Motion to Exclude Expert
Testimony of Douglas Edwards (Dkt. #60), Plaintiff Feld Motor Sports, Inc.’s Motion to Strike
Expert Report and Testimony of Sidney Blum (Dkt. #61), and Plaintiff Feld Motor Sports, Inc.’s
Motion to Strike Expert Report and Testimony of Kevin Hetmanski (Dkt. #62).
BACKGROUND
The present action concerns whether Traxxas, LP (“Traxxas”) and Feld Motor Sports,
Inc. (“Feld”) contracted for royalties on the sales of the Stampede (Model No. 3605), as Traxxas
contends, or whether the parties intended to include the entire “Stampede Lineup,” which
includes the Stampede (Model No. 3605), Stampede VXL (Model No. 3607), Nitro Stampede
(Model No. 4109), Stampede 4x4 VXL (Model No. 6708), and Stampede 4x4 (Model No.
67044/67054) (Dkt. #60 at p. 2). The language in dispute is found in the Royalty Rate Clause of
the License Agreement and states:
5. Royalty Rate: In determining the number of Licensed Articles on which
Licensor will receive royalties, “Licensed Articles” shall be deemed to include
all R/C Vehicle Units and R/C Bodies manufactured with the Stampede chassis
and/or Stampede body, whether or not branded with the Property or
“Stampede.”
(Dkt. #60 at p. 2) (emphasis in original).
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On December 31, 2013, Feld announced to Traxxas that it hired Comprehensive Royalty
Compliance (“CRC”), led by Douglas Edwards (“Edwards”), to conduct a royalty audit (Dkt.
#60 at p. 3). On March 13, 2014, Edwards issued his audit report (the “Audit Report”), which
included the entire Stampede Lineup and found that Traxxas owed Feld $1,174,987.58 (Dkt. #60
at p. 3).
On December 1, 2014, Edwards agreed to provide expert testimony on behalf of Feld
(Dkt. #60 at p. 4). Traxxas then designated Sidney Blum (“Blum”) to “[a]nalyz[e] CRC’s report
and critiqu[e] [Edwards’] findings, calculations, and methodology.” (Dkt. #61 at p. 4).
On April 6, 2015, Traxxas filed its Motion to Strike the Expert Testimony of Douglas
Edwards (Dkt. #60). On April 27, 2015, Feld filed its response (Dkt. #83). On May 11, 2015,
Traxxas filed its reply (Dkt. #98). On May 21, 2015, Feld filed its sur-reply (Dkt. #102).
On April 6, 2015, Feld filed its Motion to Strike Expert Report and Testimony of Sidney
Blum (Dkt. #61). On April 27, 2015, Traxxas filed its response (Dkt. #78). On May 11, 2015,
Feld filed its reply (Dkt. #94). On May 21, 2015, Traxxas filed its sur-reply (Dkt. #107).
On April 6, 2015, Feld filed its Motion to Strike Expert Report and Testimony of Kevin
Hetmanski (Dkt. #62). On April 27, 2015, Traxxas filed its response (Dkt. #79). On May 11,
2015, Feld filed its reply (Dkt. #95). On May 21, 2015, Traxxas filed its sur-reply (Dkt. #106).
LEGAL STANDARD
Federal Rule of Evidence 702 provides for the admission of expert testimony that assists
the trier of fact to understand the evidence or to determine a fact in issue. FED. R. EVID. 702. In
Daubert v. Merrell Dow Pharmaceuticals, Inc., the Supreme Court instructed courts to function
as gatekeepers, and determine whether expert testimony should be presented to the jury. 509
U.S. 579, 590-93 (1993). Courts act as gatekeepers of expert testimony “to make certain that an

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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.” Kuhmo Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 152 (1999).
The party offering the expert’s testimony has the burden to prove by a preponderance of
the evidence that: (1) the expert is qualified; (2) the testimony is relevant to an issue in the case;
and (3) the testimony is reliable. Daubert, 509 U.S. at 590-91. A proffered expert witness is
qualified to testify by virtue of his or her “knowledge, skill, experience, training, or education.”
FED. R. EVID. 702. Moreover, in order to be admissible, expert testimony must be “not only
relevant, but reliable.” Daubert, 509 U.S. at 589. “This gate-keeping obligation applies to all
types of expert testimony, not just scientific testimony.” Pipitone v. Biomatrix, Inc., 288 F.3d
239, 244 (5th Cir. 2002) (citing Kuhmo, 526 U.S. at 147).
In deciding whether to admit or exclude expert testimony, the Court should consider
numerous factors. See Daubert, 509 U.S. at 594. In Daubert, the Supreme Court offered the
following, non-exclusive list of factors that courts may use when evaluating the reliability of
expert testimony: (1) whether the expert’s theory or technique can be or has been tested; (2)
whether the theory or technique has been subjected to peer review and publication; (3) the
known or potential rate of error of the challenged method; and (4) whether the theory or
technique is generally accepted in the relevant scientific community. Id. at 593-94; Pipitone,
288 F.3d at 244. When evaluating Daubert challenges, courts focus “on [the experts’] principles
and methodology, not on the conclusions that [the experts] generate.” Daubert, 509 U.S. at 594.
The Daubert factors are not “a definitive checklist or test.” Daubert, 509 U.S. at 593. As
the Court has emphasized, the Daubert framework is “a flexible one.” Id. at 594. The test for
determining reliability can adapt to the particular circumstances underlying the testimony at

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issue. Kuhmo, 526 U.S. at 151. Accordingly, the decision to allow or exclude experts from
testifying under Daubert is committed to the sound discretion of the district court. St. Martin v.
Mobil Exploration & Producing U.S., Inc., 224 F.3d 402, 405 (5th Cir. 2000) (citation omitted).
Rule 403 dictates that a court “may exclude relevant evidence if its probative value is
substantially outweighed by a danger of one or more of the following:

unfair prejudice,

confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting
cumulative evidence.” FED. R. EVID. 403. Furthermore, the Fifth Circuit has consistently held
that an expert may not render conclusions of law. See Snap-Drape, Inc. v. C.I.R., 98 F.3d 194,
198 (5th Cir. 1996); see also Goodman v. Harris Cnty., 571 F.3d 388, 399 (5th Cir. 2009) (“an
expert may never render conclusions of law.”); Owen v. Kerr-McGee Corp., 698 F.2d 236, 240
(5th Cir. 1983) (“allowing an expert to give his opinion on legal conclusions to be drawn from
the evidence both invades the court’s province and is irrelevant.”)
ANALYSIS
Motion to Exclude Testimony of Douglas Edwards
Defendant moves to strike Edwards’ testimony and report under Rules 702 and 403 of the
Federal Rules of Evidence. FED. R. EVID. 702; FED. R. EVID. 403. Defendant argues that
Edwards’ opinion contains impermissible legal conclusions that are neither reliable nor relevant
to the present case, and should be excluded (Dkt. #60 at p. 7). Additionally, Defendant alleges
that Edwards is not qualified to render an opinion about R/C Vehicle Terminology, as he is
“neither an engineer nor an R/C vehicle enthusiast.” (Dkt. #60 at p. 7). Plaintiff asserts that
Edwards is qualified to testify as an expert on royalty auditing (Dkt. #83 at p. 7). Additionally,
Plaintiff alleges that Edwards’ opinion does not contain impermissible legal conclusions, but

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instead “reflect[s] the amount of royalties that Traxxas should have paid [Feld] under [Feld’s]
reading of the [License Agreement].” (Dkt. #83 at p. 11).
Rule 702 requires that an expert witness be qualified. “A district court should refuse to
allow an expert witness to testify if it finds that the witness is not qualified to testify in a
particular field or on a given subject.” United States v. Cooks, 589 F.3d 173, 179 (5th Cir. 2009)
(citing Wilson v. Woods, 163 F.3d 935, 937 (5th Cir. 1999)). However, Rule 702 does not
demand that an expert be highly qualified in order to testify, and “[d]ifferences in expertise bear
chiefly on the weight to be assigned to the testimony by the trier of fact[.]” Huss v. Gayden, 571
F.3d 442, 452 (5th Cir. 2009).
Rule 702 also requires that expert testimony be relevant. “Relevance depends upon
‘whether [the expert’s] reasoning or methodology properly can be applied to the facts in issue.’”
Knight v. Kirby Inland Marine Inc., 482 F.3d 347, 352 (5th Cir. 2007) (quoting Daubert, 509
U.S. at 593). The Fifth Circuit has stated that testimony is relevant when it “assist[s] the trier of
fact to understand the evidence or to determine a fact in issue.” Pipitone, 288 F.3d at 245
(quoting Daubert, 509 U.S. at 591).
Finally, Rule 702 requires that expert testimony be reliable. “Reliability is determined by
assessing ‘whether the reasoning or methodology underlying the testimony is scientifically
valid.’” Knight, 482 F.3d at 352 (quoting Daubert, 509 U.S. at 592-93). When determining
reliability, “[t]he court focuses on the expert’s methodology, not the conclusions generated by
it.” Orthoflex, Inc. v. ThermoTek, Inc., 986 F. Supp. 2d 776, 783 (N.D. Tex. 2013) (citing Nunn
v. State Farm Mut. Auto Ins. Co., No. 3:08-CV-1486-D, 2010 WL 2540754, at *4 (N.D. Tex.
June 22, 2010)). “If, however, ‘there is simply too great an analytical gap between the [basis for
the expert opinion] and the opinion proferred,’ the court may exclude the testimony as

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unreliable.” Orthoflex, 986 F. Supp. 2d at 783 (quoting Gen. Elec. Co. v. Joiner, 522 U.S. 136,
146 (1997)); see also Johnson v. Arkema, Inc., 685 F.3d 452, 460-61 (5th Cir. 2012); Moore v.
Ashland Chem. Inc., 151 F.3d 269, 278-79 (5th Cir. 1998).
The Federal Rules of Evidence allow an expert to assert opinions that “embrace an
ultimate issue to be decided by the trier of fact.” FED. R. EVID. 704(a). However, an expert
witness may not offer opinions that amount to legal conclusions. C.P. Interests, Inc. v. Cal.
Pools, Inc., 238 F.3d 690, 697 (5th Cir. 2001); see also Calderon v. Bank of America, N.A., 941
F. Supp. 2d 753, 759-60 (W.D. Tex. 2013) (noting that the law is not a proper subject of expert
opinion testimony). The Fifth Circuit has held that while experts may give their opinions on
ultimate issues, our legal system reserves to the trial judge the role of deciding the law for the
benefit of the jury. Askanase v. Fatjo, 130 F.3d 657, 673 (5th Cir. 1997) (quoting Specht v.
Jensen, 853 F.2d 805, 808-09 (10th Cir. 1988)).
Plaintiff asserts that Edwards is being offered to testify as an expert on royalty auditing
(Dkt. #83 at p. 7). Plaintiff contends that Edwards has run a successful business for over 15
years, which focuses exclusively on royalty auditing, and therefore, he is qualified to “analyze
vast amounts of raw data and determine the accuracy of numbers reported on a royalty statement,
as well as calculate royalties owed on products omitted from royalty statements.” (Dkt. #83 at p.
7). Plaintiff alleges that Edwards’ Audit Report is relevant because “[it] establishes the amount
Traxxas owes if [Feld’s interpretation of the License Agreement] prevails.” (Dkt. #83 at p. 8).
Finally, Plaintiff asserts that Edwards’ methodology is reliable as Edwards conducted his royalty
audit based upon his experience within the industry (Dkt. #83 at p. 9).
Defendant asserts that Edwards should be stricken as an expert witness because
“Edwards cannot be qualified as an expert in the customs and practices, or usage of trade terms

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in the R/C vehicle industry[.]” (Dkt. #60 at p. 7). Additionally, Defendant argues that Edwards’
opinions are nothing more than improper ipse dixit expert opinions (Dkt. #60 at pp. 11-12).1
Finally, Defendant argues that Edwards’ Audit Report contains impermissible legal conclusions
(Dkt. #60 at pp. 8-11).
The Court finds that Edwards possesses the requisite professional experience to render an
expert opinion on royalty audits, and Edwards’ Audit Report is relevant in determining damages
if Feld’s interpretation of the contract prevails.2 The Court also finds that Edwards’ Audit
Report does not contain impermissible legal conclusions. Instead, it states what he believes the
damages would be if Feld’s interpretation of the License Agreement prevails at trial. However,
the Court will strike Edwards’ Audit Report as to Audit Finding #43, Audit Finding #5, and
Audit Finding #6. Traxxas made payments to Feld to resolve Audit Findings #4, #5, and #6, and
therefore, the testimony is not relevant4 (Dkt. #60 at p. 11, Exhibit A at ¶ 68, Exhibit 1).
Therefore, the Court finds that Defendant’s motion to exclude Edwards’ testimony and report
should be granted in part, and denied in part.

1

The Court does not agree with Defendant that Edwards’ opinions are improper ipse dixit expert opinions.
“[N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence
which is connected to existing data only by the ipse dixit of the expert.” Interplan Architects, Inc. v. C.L. Thomas,
Inc., No. 4:08-cv-03181, 2010 WL 4065465, at *17 (S.D. Tex. Oct. 9, 2010) (quoting Gen. Elec. Co. v. Joiner, 522
U.S. at 146). Edwards’ Audit Report does contain quantitative analysis that demonstrates how he arrived at his
results, and provides the ability for Edwards to be questioned about the manner in which he arrived at his
conclusions. Dkt. #60, Exhibit 57; see Interplan Architects, 2010 WL 4065465, at *17; Gen. Star Indem. Co. v.
Sherry Brooke Revocable Trust, 243 F. Supp. 2d 605, 626 (W.D. Tex. 2001) (stating that conclusory opinions by
experts lack the requisite evidentiary reliability because they fail to set forth a discernable methodology).
2
Edwards’ qualifications only relate to the capacity that Traxxas has designated him, as an expert on royalty audits.
The Court, therefore, is not addressing whether Edwards is qualified to offer his opinion as to the interpretation of
the License Agreement, as this is beyond the scope of his testimony.
3
Edwards’ Audit Report incorrectly refers to Audit Finding 4 as “Audit Finding #3) Unauthorized Deductions.”
Because Edwards had already listed “Audit Finding #3” above the second Audit Finding #3, and followed it with
“Audit Finding #5,” the Court will assume that Edwards made a mistake in numbering, and was referring to Audit
Finding #4) Unauthorized Deductions (Dkt. #60, Exhibit 57).
4
Feld did not address this argument in either its response (Dkt. #83) or its sur-reply (Dkt. #102). Therefore, the
Court finds that Feld did not oppose striking Audit Findings #4, #5, and #6 as to Edwards’ testimony regarding his
Audit Report, as Traxxas made payments to Feld for these items (See Dkt. #60, Exhibit A at ¶ 68, Exhibit 1).

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Motion to Strike Expert Report and Testimony of Sidney Blum
Plaintiff seeks to strike the report and testimony of Defendant’s rebuttal expert Sidney
Blum (Dkt. #61).

Plaintiff asserts that Blum’s testimony should be stricken because it is

irrelevant, unreliable, and Blum is unqualified to testify about the methodology of conducting a
royalty audit (Dkt. #61 at pp. 1-2). Defendant asserts that Blum is qualified to testify based on
his experience in the royalty auditing industry (Dkt. #78 at pp. 5-7). Defendant also contends
that Blum’s testimony does not contain impermissible legal conclusions, and is relevant to the
present case (Dkt. #78 at pp. 7-11).
The Court finds that Blum is qualified to render an opinion as to the methodology
Edwards used in his Audit Report. The Fifth Circuit has held that “[t]o qualify as an expert, the
witness must have such knowledge or experience in [his] field or calling to make it appear that
his opinion or inference will probably aid the trier in his search for truth.” Metzler v. XPO
Logistics, Inc., No. 4:13-CV-278, 2014 WL 7146108, at *3 (E.D. Tex. Dec. 15, 2014). Where
there are reasonable indications of an expert’s qualifications, the question is no longer one of
gatekeeping, but one of fact for the trier of fact. Boral v. Odyssey Pictures Corp., No. 4:14-CV00044, 2015 WL 993241, at *2 (E.D. Tex. Mar. 4, 2015). Blum has extensive experience within
the field of royalty auditing (Dkt. #61, Exhibit A at pp. 58-61). Through his experience, Blum is
qualified to testify on the methodology used to conduct a royalty audit.
However, after considering Blum’s expert report, the Court finds that portions of his
report invade on the province of both the Court, in instructing the jury on the applicable law, and
the jury in determining the facts to be applied to the law. Opinions 1 and 3 of Blum’s report
analyze the standards under the American Institute of Certified Public Accountants (“AICPA”)
and the Association of Certified Fraud Examiners (“ACFE”), however they do not seem to

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challenge Edwards’ calculations (See Dkt. #61, Exhibit A). Plaintiff asserts that these opinions
contain impermissible legal conclusions, and should be stricken (Dkt. #61 at p. 5). However, the
trier of fact will not be making a determination under the AICPA or the ACFE. Additionally,
Blum is being offered as a rebuttal expert to critique the methodology of Edwards; therefore, the
standards under the AICPA and ACFE are relevant to his testimony. The Court finds that
Blum’s testimony is permissible as to Opinions 1 and 3 of the Blum Report.
Plaintiff also asserts that Opinions 2, 4, and 5 of Blum’s report contain impermissible
legal conclusions. The Court finds that portions of Opinion 5 concerning “Royalties are Only
Due on Products Called ‘Stampede’,” constitute a legal conclusion, and should be stricken (Dkt.
#61, Exhibit A at p. 45). Specifically, the Court strikes any reference in which Blum interprets
the License Agreement as it would constitute an impermissible legal conclusion. Additionally,
the Court finds that portions of Opinion 2 contain impermissible legal conclusions, and should be
stricken. Specifically, the Court finds that paragraphs 132, 133, and 138 should be stricken as
impermissible legal conclusions (Dkt. #61, Exhibit A at pp. 38-40). However, the Court finds
that Opinion 4, which pertains to the damages incurred if the royalty audit was conducted
according to the relevant standards, is permissible, and will not be stricken (Dkt. #61, Exhibit A
at pp. 43-45).
Finally, Blum asserts in Opinion 6 that the License Agreement did not use adequate
language to describe the royalty bearing units (Dkt. #61, Exhibit A at p. 47). Blum is not
qualified to give testimony regarding the terms of the license agreement, and the Court finds that
Opinion 6 constitutes an impermissible legal conclusion and should be stricken. Therefore, the
Court finds that Plaintiff’s motion to strike Blum should be granted in part and denied in part.

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Motion to Strike Expert Report and Testimony of Kevin Hetmanski
Plaintiff also seeks to the strike the expert report and testimony of Defendant’s
designated expert, Kevin Hetmanski (“Hetmanski”) (Dkt. #62).

Plaintiff asserts that

Hetmanski’s testimony should be stricken because it is unreliable, and Hetmanski is unqualified
to offer an opinion regarding the “specific differences in the design or manufacture of Traxxas
models.” (Dkt. #62 at pp. 1-2).
Defendant alleges that Hetmanski is qualified to testify as an expert regarding the R/C
vehicle industry (Dkt. #79 at p. 6). Additionally, Defendant asserts that Hetmanski’s testimony
“provides the industry perspective on all [the] relevant terms [of the License Agreement],” and
therefore, his testimony will assist the trier of fact (Dkt. #79 at p. 3). Finally, Defendant asserts
that Hetmanski’s testimony is reliable as he “utilized his own personal knowledge and
experience to record his opinions and verified specific supporting information for his opinions
with industry websites and articles[.]” (Dkt. #79 at p. 7).
After reviewing the relevant pleadings, the Court finds that Hetmanski is qualified to
testify as an expert. The Court agrees with Defendant that Hetmanski’s testimony is reliable and
“would assist the trier of fact to understand the evidence or to determine a fact in issue.”
Pipitone, 288 F.3d at 245 (quoting Daubert, 509 U.S. at 591). Hetmanski supports his opinions
with substantial detail distinguishing various physical and mechanical differences between the
models in the Stampede Lineup. Additionally, Hetmanski has “worked in the R/C Industry for
more than 14 years” and has been “an R/C hobbyist for over twenty years.” (Dkt. #62, Exhibit
C). Therefore, the Court finds that Hetmanski has the experience needed to render an expert
opinion regarding the terminology used within the R/C vehicle industry. Therefore, the Court

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finds that Plaintiff’s Motion to Strike Expert Report and Testimony of Kevin Hetmanski should
be denied.5
CONCLUSION
It is therefore ORDERED that Traxxas LP’s Motion to Strike the Expert Testimony of

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Douglas Edwards (Dkt. #60) is hereby GRANTED IN PART AND DENIED IN PART, Feld
Motor Sports, Inc.’s Motion to Strike Expert Report and Testimony of Sidney Blum (Dkt. #61) is
hereby GRANTED IN PART AND DENIED IN PART, and Feld Motor Sports, Inc.’s Motion
to Strike Expert Report and Testimony of Kevin Hetmanski (Dkt. #62) is hereby DENIED.

SIGNED this 7th day of August, 2015.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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Plaintiff also asserts that Hetmanski’s opinion is nothing more than lay observations that do not require expert
testimony (Dkt. #62 at pp. 10-11). Because Hetmanski is testifying as to the industry use of the terms at issue in the
present case, the Court finds that his opinion constitutes an expert opinion, not lay testimony.

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