American Dairy Queen Corporation v. Universal Investment Corporation

Filing 185

OPINION AND ORDER denying in part and reserving in part 128 Motion in Limine to exclude evidence related to other Dairy Queen franchisees; granting as unopposed 130 Motion in Limine to exclude evidence under FRE 408; denying 133 Motion in Limin e to exclude expert testimony and opinions of James Devine; granting as unopposed 136 Motion in Limine to exclude damages disclosed after close of discovery; denying 123 Motion in Limine regarding argument of non-cure. Signed by District Judge William M. Conley on 9/15/17. (jat)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
AMERICAN DAIRY QUEEN
CORPORATION,
Plaintiff and Counter Defendant,
v.

OPINION AND ORDER
16-cv-323-wmc

UNIVERSAL INVESTMENT
CORPORATION,
Defendant and Counter Claimant.
This case is set for a jury trial commencing September 25, 2017, on the parties’
cross-claims under the Wisconsin Fair Dealership Law (“WFDL”), Wis. Stat. § 135.01 et
seq., plaintiff’s claims under the Lanham Act, 15 U.S.C. §§ 1141, 1125(a)(1), and
defendant’s counterclaims for breach of certain licensing agreements under Iowa law. In
advance of the final pretrial conference, the court issues the following opinion and order
on the parties’ respective motions in limine.

OPINION
I. Plaintiff’s Motions in Limine 1
A. Motion in limine to exclude evidence relating to other Dairy Queen
franchisees (dkt. #128)
In its first motion in limine, plaintiff seeks to exclude evidence of non-compliance

Plaintiff ADQ filed two other motions in limine that solely concern defendant’s tortious
interference counterclaim. (Dkt. ##130, 136.) No doubt because the court granted plaintiff’s
motion for summary judgment on that claim, defendant chose not to respond to those motions in
limine, effectively conceding that the evidence ADQ sought to exclude would no longer be relevant.
Accordingly, the court will grant both motions as unopposed.
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with its brand standards by approximately 40 other Dairy Queen Stores under Fed. R.
Evid. 401, 402 and 403. Specifically, ADQ predicts that Universal will likely attempt to
introduce: (1) expert witness testimony by Elizabeth Feagles of 30 stores that she visited
in Iowa, Minnesota and Wisconsin that offered off-brand products and menu items; (2)
photos taken by Universal’s counsel of five other franchisees’ non-compliant menu items;
(3) testimony from other franchisees about their off-brand offerings; and (4) similar
testimony from operational employees who provide support services yet to other
franchisees. (Pl.’s Mot. (dkt. #128) 5.)
Fundamentally, ADQ argues that this evidence is not relevant to the WFDL claims
because these other franchisees are not “similarly situated” for purposes of determining
whether the termination was non-discriminatory (which is in turn one of the relevant
factors in assessing whether ADQ acted with good cause under the WFDL). 2 Among other
reasons, ADQ contends that these franchisees are not similarly situated to Universal
because: (1) they do not have the same “mix of non-compliance . . . or pervasive level of
non-compliance”; (2) they do not have the same contract or licensing relationship with
ADQ; and (3) some are not located in Wisconsin. (Id. at 7.) In addition, ADQ argues that
even if this evidence were relevant, it should be excluded under Rule 403 because it will
create 40 mini-trials within the trial.

The WFDL prohibits the termination or change in competitive circumstances of dealerships,
without “good cause.” Wis. Stat. § 135.03. In turn, good cause is defined as the “[f]ailure by a
dealer to comply substantially with essential and reasonable requirements imposed upon the dealer
by the grantor, or sought to be imposed by the grantor,” Wis. Stat. § 135.02(4)(a). The statute
further demands that the “requirements be non-discriminatory “as compared with requirements
imposed on other similarly situated dealers either by their terms or in the manner of their
information.”

2

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Regardless of whether such evidence is admissible for purposes of arguing that the
termination was discriminatory, Universal points out in response that this evidence is
material to whether the requirements were “essential and reasonable” also a part of the
statutory definition of “good cause.” At minimum, the court agrees with defendant that
evidence ADQ tolerates variance from a requirement “may” bear upon whether the
requirement is truly reasonable and essential. (Def.’s Opp’n (dkt. #150 2.)
Still, plaintiff’s position as to what constitutes a “similarly situated franchisee” for
purposes of the jury determining whether ADQ’s requirements were non-discriminatory is
too narrow. As the Seventh Circuit recently cautioned in a franchise claim brought under
Indiana law, in considering whether another franchisee is “similarly situated,” “precise
equivalence is not required; the parties must be comparable, not clones.” Andy Mohr Truck
Ctr., Inc. v. Volvo Trucks N. Am., No. 16-2788, 2017 WL 3695355, at *4 (7th Cir. Aug. 28,
2017).

ADQ may, of course, argue that these stores were more in compliance than

Universal or that their respective licensing agreements allowed for greater non-conformity
with brand standards (although this latter argument may be a double-edged sword for
plaintiff), but that is the jury’s to decide, as is the larger determination as to whether
Universal’s license was terminated for good cause. See Andy Mohr, 2017 WL 3695355, at
*4 (explaining that “similarly situated” question is one for the jury).
ADQ also raised an interesting, unresolved, as far as the court can tell, question as
to whether dealers in other states are “similarly situated” within the meaning of the WFDL.
See generally Michael A. Bowen et al., The Wisconsin Fair Dealership Law § 6.45 (4th ed.
2012). Certainly, Ralph Gentile, Inc. v. State Div. of Hearing & Appeals, 2011 WI App 98, ¶

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25, 334 Wis. 2d 712, 700 N.W.2d 555, is not dispositive on this issue as it only references
the potential for a Commerce Clause concern to affirm the narrow construction by an
administrative agency of the underlying statute. See id. at ¶ 25 n.10 (“We note, though,
that we do not decide the constitutional issue; we merely hold that given the potential
commerce-clause problems, the Division’s interpretation of Wis. Stat. § 218.0116(1)(i)1.a
was, in light of the section’s clear language, ‘reasonable.’”). Moreover, the other case cited
by ADQ, Morley-Murphy Co. v. Zenith Elecs. Corp., 142 F.3d 373, 379 (7th Cir. 1998),
presented a far broader Commerce Clause concern than that possibly implicated here.
The court, however, need not resolve this issue for purposes of determining whether
the evidence is admissible. For the reasons explained above, the evidence of non-compliance
by franchisees in other states is relevant to plaintiff’s claim that the requirements were
“reasonable and essential.” As such, the only question is whether Universal may rely on
this evidence to argue that ADQ’s termination of Universal’s license was discriminatory.
The court, therefore, will reserve on this portion of the motion, and take it up with the
parties at the final pretrial conference.
This leaves defendant’s challenge under 403, asserting its concern that the evidence
“would be overwhelmed by the undue delay, unfair prejudice to ADQ, and the confusion
to the jury to decide how ADQ considered each DAIRY QUEEN® franchisee’s ‘situation.’”
(Pl.’s Mot. (dkt. #128) 17.) Though ADQ’s description appears exaggerated, the court
shares plaintiff’s concern that this trial not turn into a series of mini-trials. As such, the
court also will take up with the parties at the final pretrial conference how best to present
this evidence efficiently and fairly for both sides.

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B. Motion in limine to exclude expert testimony of James Devine
Plaintiff seeks to exclude the expert testimony of defendant’s damages expert. The
admissibility of expert testimony in federal courts is governed principally by Rule 702 and
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Rule 702 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
methods; and
(d) the expert has reliably applied the principles and methods
to the facts of the case.
A district court functions as a “gatekeeper” regarding expert testimony, determining
as a threshold matter whether a party’s proffered expert testimony is both relevant and
reliable. Daubert, 509 U.S. at 589; see also United States v. Johnsted, 30 F. Supp. 3d 814, 816
(W.D. Wis. 2013) (the expert testimony must be “not only relevant, but reliable”).
Although expert testimony is still “liberally admissible under the Federal Rules of
Evidence,” Lyman v. St. Jude Med. S.C., Inc., 580 F. Supp. 2d 719, 723 (E.D. Wis. 2008),
it must, therefore, satisfy the following three-part test to be offered at trial:
(1) the witness must be qualified “as an expert by knowledge,
skill, experience, training, or education,” Fed. R. Evid. 702;
(2) the expert’s reasoning or methodology underlying the
testimony must be scientifically reliable, Daubert, 509 U.S. at
592-93; and

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(3) the testimony must assist the trier of fact to understand the
evidence or to determine a fact in issue. Fed. R. Evid. 702.
Ervin v. Johnson & Johnson, Inc., 492 F.3d 901, 904 (7th Cir. 2007). At the same time,
“[v]igorous cross-examination, presentation of contrary evidence, and careful instruction
on the burden of proof are the traditional and appropriate means of attacking shaky but
admissible evidence.” Daubert, 509 U.S. at 596.
Here, Universal offers Devine’s expert opinion in support of its claim for damages
for its breach of license agreement claim based on ADQ’s termination of the Dairy Queen
of Dewitt (Iowa) (“DQD”) territory agreement in August 2015. 3 In his two-page report,
Devine opines that “a Dairy Queen brand store located in the DeWitt Travel Mart would
generate at least $500,000 in gross sales yearly which at 5% would result in a $25,000
yearly sales payment to Universal Investment Corporation.” (Devine Rept. (dkt. #135-1)
¶ 4.) Devine explains that the basis of his opinion is his “personal observations of the
volume of sales and profitability of the DeWitt Travel Mart and my familiarity through
my work with my father with volume of sales for A&W brand stores located at 2 other
truck stock convenience store locations at Riverside Iowa and Vinton Iowa.” (Id. at ¶ 5.)
Specifically, Devine notes that those two stores’ annual sales volume is $700,000 and
$500,000 respectively. (Id.) Devine also states that “[b]ased on the higher volume of
customer flow . . . , the DeWitt Travel Mart would easily surpass the Riverside and Vinton

This begs the question how Universal has a stake in such a claim. Almost one year later, in July
2016, DQD purportedly assigned to Universal all claims, causes of action and damages for
termination of its territory and franchise rights. Devine operates the Dewitt Travel Mart, and it
has expressed “an interest” in opening a Dairy Queen store in the mart. Since not presented on
summary judgment, the court reserves on what standing, ripeness or other equitable or legal
defenses might apply to this claim.
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Iowa volume of sales,” thus implying that his estimate is on the conservative side.
In its Daubert motion, ADQ first challenges Devine’s testimony on the basis that he
lacks the necessary expertise to opine on expected sales, specifically pointing out that he
“has no accounting degree, no background in forecasting or financial projections, no prior
expert testimony experience, no teaching or speaking engagements related to financial
projections or business valuation, no publications regarding financial projections and
comparative business analysis, no experience operating a DAIRY QUEEN® restaurant; and
no experience forecasting evidence for a new business.” (Pl.’s Mot. (dkt. #133) 3.) While
an apparently accurate description of Devine’s limited professional and educational
experience, Devine does not purport to offer his expert based on skill, training or education.
Instead, as defendant explains in its response, and consistent with Devine’s own
representations in his report, the opinion is based on his personal knowledge of (1) sales
data from similar fast food stores and (2) customer flow at the DeWitt Travel Mart as
compared with other convenience stores or truck stops. Rule 702 requires an expert
witness to be qualified “as an expert by knowledge, skill, experience, training, or education”
Fed. R. Evid. 702 (emphasis added). In light of the limited scope and straight-forward
nature of his opinion, Devine need not be an accountant or have experience in financial
forecasting or business valuation to offer his opinion. See Walker v. Soo Line R.R. Co., 208
F.3d 581, 591 (7th Cir. 2000) (“Rule 702 specifically contemplates the admission of
testimony by experts whose knowledge is based on experience.”).
Second, plaintiff seeks to exclude Devine’s testimony because he “did not use any
methodology in arriving at his opinion.” (Pl.’s Mot. (dkt. #133) 8.) To the contrary,

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Devine’s methodology is very straight-forward -- he relied on annual sales from what he
contends are similar fast-food establishments and his understanding of the customer
volume at the DeWitt Travel Mart relative to those other establishments. The fact that
the methodology is simple does not render it unreliable. Stated another way, the simple
methodology aligns with his narrow, straight-forward opinion. Plaintiff is, of course, free
to cross-examine Devine, exposing the limited factual basis for his opinion. See Daubert,
509 U.S. at 596. This challenge, however, goes to the weight the jury may assign Devine’s
opinion, not its admissibility. See Weir v. Crown Equip. Corp., 217 F.3d 453, 465 (7th Cir.
2000) (rejecting Daubert motion when challenge went to weight of opinion not its
admissibility). Accordingly, the court will deny this motion. 4

II. Defendant’s Motion in Limine
For its part, defendant filed a single motion in limine seeking to preclude plaintiff
“from arguing or stating that [Universal] failed to timely cure items that were not identified
by ADQ as specific cure requirements or that such items support ADQ’s assertion that it
has ‘good cause’ to terminate [Universal’s] dealership.” (Def.’s Mot. (dkt. #123) 1.)
Specifically, Universal seeks an order excluding ADQ from arguing that Universal failed to
cure by failing to (1) communicate or refusing to talk with ADQ and (2) allow “routine”
inspections (as compared to the inspections to insure compliance identified in the notice
of default and right to cure letter). (Id. at 2-3.)

The court is concerned about the fundamental assumption upon which Devine’s opinion appears
premised - - that the DeWitt Travel Mart would open a DQ store -- but will take up this issue along
with the others not with respect to Universal’s claims under Iowa law at the final pretrial conference.
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In response, plaintiff argues that Universal’s refusal to talk with ADQ was identified
as a basis for default in the August 28 letter. (See dkt. #14-7 at 5 (“In this instance, Mr.
Robertson refuses to talk to ADQ . . . .”).) Whether or not this discrete basis was identified
as a basis for default, a number of the other undisputed identified areas of default - namely, providing reports and setting up inspections - - necessarily implicate a threshold
communication requirement. As such, the court agrees with ADQ that it may present
evidence and argue that one of the reasons for Universal’s default was refusing to
communicate.
As for the second area that Universal seeks to exclude -- its purported refusal to
allow “routine” inspections -- the court again agrees with ADQ. Contrary to Universal’s
characterization, the distinction between the compliance inspections identified in the
August 28 letter and so-called “routine” inspections is not “quite clear[].” (Def.’s Mot.
(dkt. #123) 3.) Indeed, defendant concedes that the August 28 letter identified as an area
of default “permit[ing] ADQ to inspect the Eau Claire Restaurant to confirm that UIC has
complied with its obligations and violations of law.” (Id. at 2.) As far as the court can tell,
the purpose of a “routine” inspection is also to ensure compliance with obligations as a
licensee. Defendant is free to argue to the contrary to the jury, but the court sees no basis
from barring plaintiff from arguing that Universal was in default for refusing to allow
inspections. Accordingly, the court will deny this motion.

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ORDER
IT IS ORDERED that:
1) Plaintiff American Dairy Queen Corporation’s motion in limine to exclude
evidence related to other Dairy Queen franchisees (dkt. #128) is DENIED IN
PART AND RESERVED IN PART.
2) Plaintiff’s motion in limine to exclude evidence under FRE 408 (dkt. #130) is
GRANTED AS UNOPPOSED.
3) Plaintiff’s motion in limine to exclude expert testimony and opinions of James
Devine (dkt. #133) is DENIED.
4) Plaintiff’s motion in limine to exclude damages disclosed after close of discovery
(dkt. #136) is GRANTED AS UNOPPOSED.
5) Defendant Universal Investment Corporation’s motion in limine regarding
argument of non-cure (dkt. #123) is DENIED.
Entered this 15th day of September, 2017.
BY THE COURT:

/s/
__________________________________
WILLIAM M. CONLEY
District Judge

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