United States District Court, E.D. North Carolina
SMD SOFTWARE, INC., a North Carolina corporation; and SITELINK SOFTWARE, LLC, a North Carolina limited liability company, Plaintiffs,
EMOVE, INC., a Nevada corporation; U-HAUL INTERNATIONAL, INC., a Nevada corporation; WEB TEAM ASSOCIATES, a Nevada corporation; and A& M ASSOCIATES, an Arizona corporation, Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For SMD Software, Inc., a North Carolina corporation, Sitelink Software, LLC, a North Carolina limited liability company, Plaintiffs: Luther Donald Starling, Jr., LEAD ATTORNEY, Daughtry, Woodard, Lawrence & Starling, Smithfield, NC.
For EMOVE, INC., a Nevada Corporation, U-Haul International, Inc., Web Team Associates, A& M Associates, Defendants: Christopher A. Page, LEAD ATTORNEY, Walter Brock, Jr., Young, Moore & Henderson, Raleigh, NC; Patrick M. Aul, Young, Moore & Henderson, P.A., Raleigh, NC.
LOUISE W. FLANAGAN, United States District Judge.
This case comes before the court on several evidentiary motions filed by the parties to this dispute. Plaintiffs SMD Software, Inc. (" SMD" ), and SiteLink Software, LLC (" SiteLink" ) have filed motions to exclude the testimony and reports of defendants' proffered experts Tom Litton (" Litton" ) and Dr. Carson Bays (" Bays" ) (DE 179, 183). Likewise defendants EMove, Inc. (" EMove" ), U-Haul International, Inc. (" U-Haul" ), Web Team Associates (" Web Team" ) and A& M Associates (" A& M" ) have filed motions to exclude the testimony and reports of plaintiffs' proffered experts, Dr. Nicholas Didow (" Didow" ) and Dr. William Putsis (" Putsis" ) (DE 190, 192). Also before the court is plaintiffs' motion to exclude opinions of
Litton and Bays not disclosed in their reports (DE 238). All of the motions have been fully briefed and are ripe for ruling. For the reasons that follow, the court GRANTS defendants' motion to exclude Putsis, GRANTS in part and DENIES in part defendants' motion to exclude Didow, GRANTS in part and DENIES in part plaintiffs' motions to exclude Litton and Bays, and GRANTS in part and DENIES in part plaintiffs' motion to exclude the opinions of Litton and Bays not included in their report.
STATEMENT OF THE CASE
On July 14, 2008, plaintiffs initiated this action in Wake County Superior Court. On August 20, 2008, the action was removed to this court by U-Haul, at that time the only defendant. Plaintiffs, who sell self-storage management software products called " SiteLink," (" SiteLink PC" ) and " SiteLink Web Edition," asserted state law claims for defamation, unfair or deceptive trade practices, and tortious product disparagement arising out of alleged misrepresentations about plaintiffs' software on comparison charts used in advertising brochures for a competing software program, " WebSelfStorage." Three versions of the charts were published, the first in 2004, the second in 2005, and the last in 2008. All of the software programs are intended for use by the operators of self-storage facilities.
On October 7, 2008, plaintiffs filed an amended complaint. The amended complaint named EMove, a wholly-owned subsidiary of U-Haul which sells WebSelfStorage, as the sole defendant. Plaintiffs asserted violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), in addition to the state law causes of action contained in their initial complaint. Two days later, plaintiffs filed a voluntary dismissal without prejudice as to U-Haul.
Subsequently, plaintiffs filed a second amended complaint, reasserting their claims against U-Haul, including now the Lanham Act claim, and also asserting those claims against Web Team and A& M, two U-Haul subsidiaries. According to plaintiffs, U-Haul owns WebSelfStorage, Web Team designed the software and provides technical support to users, and A& M produced the advertising materials at issue. All three defendants are alleged to have collaborated with their sister company EMove in the alleged defamatory advertisement.
On April 18, 2011, each party filed two motions under
Daubert v. Merrell Dow Pharms., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), seeking to exclude the reports and testimony of the other sides' proffered expert witnesses. In response to defendants' Daubert motions, plaintiffs' experts both filed affidavits further discussing their qualifications and opinions. Plaintiffs filed a motion to exclude what they argued were new opinions not timely disclosed contained in those affidavits.
A. Standard of Review
The admission of expert testimony is governed by Rule 702 of the Federal Rules of Evidence. The proponent of the expert testimony bears the burden of establishing its admissibility by a preponderance of proof.
Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001). A district court is granted broad latitude in making its determination on the admissibility of proposed expert testimony.
United States v. Gastiaburo, 16 F.3d 582, 589 (4th Cir. 1994) (" The trial judge has broad discretion under Rule 702." ). Review of the Daubert case law by the advisory committee shows that the rejection of expert
testimony is the exception rather than the rule. Fed. R. Evid.702 advisory committee's note (2000).
Rule 702 provides that expert testimony is appropriate when it " will assist the trier of fact to understand the evidence or to determine a fact in issue." Fed.R.Evid. 702. Rule 702 further provides that a witness qualified as an expert may be permitted to testify where " (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Id. Courts have distilled the requirements of Rule 702 into two crucial inquiries: whether the proposed expert's testimony is relevant and whether it is reliable.
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999);
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993);
United States v. Forrest, 429 F.3d 73, 80 (4th Cir. 2005). The trial court must carry out the special gate-keeping obligation of ensuring that expert testimony meets both requirements.
Kumho Tire, 526 U.S. at 147; United States v. Moreland, 437 F.3d 424, 431 (4th Cir. 2006), overruling on other grounds recognized by
United States v. Diosdado-Star, 630 F.3d 359 (4th Cir. 2011).
In order to be considered relevant, the proposed expert testimony must appear to be helpful to the trier of fact. See
Daubert, 509 U.S. at 591-92. " Testimony from an expert is presumed to be helpful unless it concerns matters within the everyday knowledge and experience of a lay juror."
Kopf v. Skyrm, 993 F.2d 374, 377 (4th Cir. 1993).
" '[T]he test of reliability is flexible' and 'the law grants a district court the same broad latitude when it decides how to determine reliability as it enjoys in respect to its ultimate reliability determination.'"
United States v. Wilson, 484 F.3d 267, 274 (4th Cir. 2007) (quoting Kumho Tire, 526 U.S. at 141-42). One factor pertinent to reliability is the proposed expert's qualifications. See
Giddings v. Bristol-Myers Squibb Co., 192 F.Supp.2d 421, 425 (D. Md. 2002). A witness may qualify to render expert opinions in any one of the five ways listed in Rule 702: knowledge, skill, experience, training, or education. Kumho Tire, 526 U.S. at 147. The Fourth Circuit has ruled that when an expert's qualifications are challenged, " 'the test for exclusion is a strict one, and the purported expert must have neither satisfactory knowledge, skill, experience, training nor education on the issue for which the opinion is proffered.'" Kopf, 993 F.2d at 377 (quoting
Thomas J Kline, Inc. v. Lorillard, Inc., 878 F.2d 791, 799 (4th Cir. 1989)).
Additional factors also bear on the reliability of the expert's testimony. They may include: " (1) whether a theory or technique can be (and has been) tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) whether a technique has a high known or potential rate of error and whether there are standards controlling its application; and (4) whether the theory or technique enjoys general acceptance within the relevant community."
Tunnell v. Ford Motor Co., 245 Fed.App'x. 283, 286 (4th Cir. 2007) (citing Kumho Tire, 526 U.S. at 149-50); accord Daubert, 509 U.S. at 593-94. In addition, " [a]n expert's opinion should be excluded when it is based on assumptions which are speculative and are not supported by the record."
Tyger Const. Co. Inc. v. Pensacola Constr. Co., 29 F.3d 137, 142 (4th Cir. 1994).
Of course, the admission of expert testimony must be considered within the context of the other rules of evidence. In particular, Rule 403 provides that the court must ensure that the probative value of any proffered evidence is not " substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." Fed.R.Evid. 403. As this court has noted, " [d]espite the court's ability to exercise broad discretion and flexibility when determining the admissibility of expert testimony, the court must balance this discretion with the concerns of Rule 403 to ensure that the probative value of the proffered testimony is not 'substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury.'"
Bouygues Telecom, S.A. v. Tekelec, 472 F.Supp.2d 722, 725 (E.D.N.C. 2007) (quoting Fed.R.Evid. 403).
1. Motion to Exclude Dr. Putsis
Dr. Putsis is a Professor of Marketing at the University of North Carolina Kenan-Flagler Business School. Plaintiffs engaged him to evaluate the impact of the allegedly false claims made by the comparison charts on plaintiffs' business. Putsis conducted a survey purporting to determine the impact of the comparison charts. Based upon the results of that survey, he concluded that the representations in the 2008 comparison chart caused plaintiffs to lose a specific percentage of market share.
Defendants argue that Putsis's opinions are based on flawed or speculative assumptions, not supported by evidence in the record. One of the assumptions defendants note is that every customer in the market who read the charts would have made a purchasing decision based on them.  That Putsis makes this assumption is clear. Putsis's survey purported to determine how many potential customers who otherwise would have purchased plaintiffs' software did not because of the 2008 comparison chart. The survey presented respondents with a neutral comparison table detailing the pricing and features of fifteen (15) hypothetical unnamed self-storage management software programs. No names were used, but some of the anonymous programs on the table reflected the description of plaintiffs' programs --SiteLink PC and SiteLink Web Edition -- given in the 2008 comparison chart. Other programs reflected what plaintiffs believed were accurate descriptions of their programs' pricing and features. Based upon the preferences indicated by survey respondents, and their responses to questions asked about their buying habits and preferences, Putsis concluded that the allegedly false representations resulted in plaintiffs' losing a specific percentage of market share.
Putsis' survey -- which forces respondents to choose products based solely on information contained in a table -- can only be said to accurately show what percentage
of those who read the 2008 comparison chart were thereby led not to purchase plaintiffs' software if those customers made a decision based solely on the comparison chart. This is a dubious proposition. In the first place survey respondents were given an apparently objective and trustworthy comparison table. In reality, the comparison charts which are subject of the claims in this case appeared near the back of defendant EMove's advertising brochures and was clearly advertising material, which is often viewed with skepticism. See
Scotts Co. v. United Indus. Corp., 315 F.3d 264, 280 (4th Cir. 2002) (" The survey thus elicited information about the consumer's reaction to an isolated part of the packaging, when the relevant issue in a false advertising case is the consumer's reaction to the advertisement as a whole and in context." ).
Furthermore, the survey did not allow respondents to opt out, or to say they would like more information before making a purchasing decision. Respondents had to make a decision based on the information they were given. As Didow, plaintiffs' other proffered expert, asserts, a commercial buyer will not make a quick decision for a purchase such as this, but will consider large amounts of information. See Didow dep. (February 21, 2012) 95. 
Plaintiffs point to no evidence of record suggesting Putsis's assumption that all buyers who read the 2008 comparison chart would rely on it exclusively in making a decision is true. Putsis notes in his report that " if [the advertisements] did not work, there would be no reason for EMove to distribute such flyers and advertisements in the first place; their own actions speak to the effectiveness of such communication strategies." Putsis Report 4. There is a large unsupported leap, however, from evidence that an advertisement is effective to concluding all customers who read it exclusively relied on it in making a purchasing decision. Thus, Putsis's conclusion that plaintiffs suffered a specific percentage loss of market share is based upon speculative assumptions not supported by the record and should be excluded. See e.g.,
E. Auto Distributors, Inc. v. Peugeot Motors of Am., Inc., 795 F.2d 329, 337-38 (4th Cir. 1986) (excluding expert's damages calculations that were based on the assumption that vehicle shortages set back growth in the number of plaintiff's automobile dealerships by two years because no evidence supported that assumption);
Perry v. Scruggs, 17 F.Appx. 81, 87 (4th Cir. 2001) (expert's calculation of damages accruing to plaintiffs due to defendants' failure to build a golf course on plaintiffs' property was inadmissible where his calculations relied on speculative assumptions, namely, when the course would have been built by, that the course would have annually generated comparable business to that generated in 1999 by another course built on plaintiffs' property, and that plaintiffs could increase their prices parallel to the projected inflation rate);
Blake v. Bell's Trucking, Inc., 168 F.Supp.2d 529, 533 (D.Md. 2001); PBM Products, LLC v. Mead Johnson Nutrition Co.,
3:09-CV-269, 2010 WL 56072 (E.D. Va. Jan. 4, 2010) aff'd sub nom. PBM Products, LLC v. Mead Johnson & Co., 639 F.3d 111 (4th Cir. 2011).
Plaintiffs respond that these critiques are irrelevant because Putsis's survey was only ...