United States District Court, E.D. Pennsylvania
August 12, 2004.
OUT-A-SIGHT PET CONTAINMENT, INC., Plaintiff
RADIO SYSTEMS CORPORATION, RADIO FENCE DISTRIBUTORS, INC., and LORI VOLWILER, Defendants.
The opinion of the court was delivered by: LOUIS POLLAK, Senior District Judge
On December 3, 2003, I granted in part the motion in limine
filed by defendants Radio Systems Corporation ("RSC"), Radio
Fence Distributors, Inc. ("RFD"), and RFD president Lori Volwiler
(collectively, "defendants") to preclude the testimony of Stephen
J. Scherf, the damages expert for plaintiff Out-A-Sight Pet
Containment, Inc. ("OAS"). I ruled that Mr. Scherf could offer
expert testimony based on OAS's sales projection for fiscal year
2002, but not based on OAS's sales projections for fiscal years
2003 to 2006. I determined that the latter projections, which
incorporated a 47 percent annual sales increase, lacked a
sufficient factual foundation.
Mr. Scherf subsequently prepared a supplemental expert report
("Supplemental Report"). The damages estimates in the
Supplemental Report continued to rely on the 47 percent growth
rate, and endeavored to provide new information that supported
such a figure. In a memorandum and order dated July 9, 2004, I
found that the 47 percent figure, and thus Mr. Scherf's damages
estimates, still lacked an adequate factual basis, and granted
the defendants' second motion in limine to preclude Mr. Scherf's
Apparently, my two orders have done little to resolve the issue
of OAS's proposed damages testimony, as OAS and RSC have each
filed an additional motion regarding damages testimony in this
case. With this opinion, I hope to resolve the issue so that this
case may proceed.
In its motion, Out-a-Sight requests three forms of relief: (1)
clarification of my order of July 9, 2004; (2) reconsideration of
the same order; and (3) an order compelling RFD to disclose the
amount of its annual sales since 2000 in the northeast United
1. Motion for clarification
OAS asks the court to "clarify" the order of July 9, 2004, to
allow Mr. Scherf to testify "as stated in his Supplemental
Report, that OAS had a value of $478,000 as of May 20, 2001 based
upon its first year sales projections." On the record before the
court, there is no basis for concluding that Mr. Scherf should or
should not be permitted to offer that opinion as expert
testimony. I would note, however, that this is not what Mr.
Scherf stated in his Supplemental Report. What was stated in a
footnote, without any further explanation, was as follows: "It
should be noted that the discounted cash flows for year one
approximate $478,000." If factual support exists for either
statement, it is not adequately presented in the Supplemental
Report. Accordingly, the order of July 9, 2004, stands as issued,
and Mr. Scherf may not testify as proposed in his Supplemental
2. Motion for reconsideration
OAS also seeks reconsideration of the decision not to consider
to the Supplemental Report's collection of damages estimates
based on a range of projected sales growth rates. OAS asks this
court to rule on the reasonableness of each of nine growth rates,
indicating that Mr. Scherf is prepared to testify to any of nine
growth rates between 0 percent and 40 percent, calculated in 5
percent intervals. In its reply brief, OAS suggests that
[i]f the Court is equipped to conclude that Mr.
Scherf lacks `good grounds' to testify as to the
value of OAS based on a 47 percent growth rate, then
the Court should be equally equipped to determine
whether or not Mr. Scherf has `good grounds' to
testify based upon any lower growth rate. . . .
Reply Memorandum of Plaintiff at 3. In essence, OAS is asking the
court to choose the figure that it finds to be most reasonable.
OAS's request is based on a misconception of the relationship
between the expert, the proponent of the expert, and the court.
It is the obligation of the expert to formulate an opinion based
on reliable data and his own expertise. The burden then rests
upon the party putting forward the expert opinion to establish
its reliability. In re Paoli R.R. Yard PCB Litigation,
35 F.3d 717, 744 (3d Cir. 1994). The court's responsibility is merely to
"act as gatekeeper, preventing opinion testimony that does not
meet the requirements of qualification, reliability and fit from
reaching the jury." Schneider ex rel. Estate of Schneider v.
Fried, 320 F.3d 396, 404 (3d Cir. 2003). For this court to
accept OAS's invitation, giving its opinion as to the most
reasonable projection, would be to overstep the bounds of both
its authority and its expertise.
Even if Mr. Scherf were to advance a damages estimate based on
any one of the nine proposed growth rates, I would be compelled
to exclude the testimony as not supported by a sufficient factual
foundation. As my orders have made clear, the flaw in Mr.
Scherf's adoption of a 47 percent growth rate was not that the
rate was inherently unreasonable, but that Mr. Scherf failed to
provide an adequate factual basis to support its adoption.
Whereas the factual support for the 47 percent rate was deemed to
be insufficient, support in the Supplemental Report for any one
of the alternative growth rates contained therein is nonexistent.
Therefore, I will not disturb my July 9 order precluding Mr.
Scherf from testifying as proposed in his Supplemental Report
including any testimony based on the alternative damages
estimates contained therein.
3. Motion to compel discovery
Finally, OAS asks the court to compel RFD to disclose the
amount of its annual sales since 2000 in the northeast United
States. While it may be that such information is of use to OAS,
OAS has not identified any extenuating circumstances that warrant
reopening discovery, which closed nearly two years ago. OAS's
request will be denied.
RSC's third motion in limine
In the present motion in limine, RSC seeks an order from the
court excluding "any evidence or testimony, lay or expert,
offered by [OAS] on the issue of lost profits or other
consequential damages based on OAS's business plan to be a
`dealer network.'" It should be noted that courts do not
generally exclude testimony in the abstract, instead focusing on
testimony that has been specifically proffered by a party. In any
event, the blanket exclusion of such testimony is not warranted
at this stage.
RSC cites Hadley v. Baxendale, 156 Eng. Rep. 145 (1854), and
a series of cases applying Tennessee law*fn1 for the
proposition that consequential damages arising out of a breach of
contract claim must be within the reasonable contemplation of the
parties at the contract's formation. Citing OAS's 1999 business
plan, which suggests that OAS intended to sell pet containment
products directly to consumers, RSC claims that it was not within
the contemplation of the parties at the time of the Supply
Agreement that OAS would seek to create a network of independent
dealers. RSC maintains that the dealer network business model is
materially different than the one the parties envisioned for OAS
at the formation of the Supply Agreement, and hence that OAS
cannot recover damages arising from OAS's inability to establish
a dealer network. Therefore, RSC argues, any damages testimony
based on such a business model is irrelevant and thus
Even assuming that the two business models direct sale and
dealer network are as "materially different" as RSC suggests,
Hadley and its progeny could only preclude damages testimony
with respect to OAS's breach of contract claim. These cases
provide no basis for excluding testimony in connection with the
two other claims asserted by OAS: (1) intentional interference
with contractual relations, against RFD and Ms. Volwiler; and (2)
violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, against
all defendants.*fn2 As long as these remain viable claims,
testimony concerning consequential damages is clearly relevant.
RSC also renews its argument that testimony as to OAS's
consequential damages is irrelevant, because under Tennessee law,
no recovery can be had for loss of profits that are uncertain or
speculative. As I noted in my memorandum and order of December 3,
2003, however, a plaintiff need not prove the exact amount of
damages; where damages can be proved to a reasonable certainty,
the plaintiff may recover. See Pinson & Assocs. Ins. Agency,
Inc. v. Kreal, 800 S.W.2d 486, 488 (Tenn. Ct. App. 1990). In the
December 3, 2003, memorandum and order, I also found that OAS's
alleged lost profits could be proved to a reasonable certainty if
founded on OAS's sales projections for fiscal year 2002.
Therefore, the broad preclusion of testimony as to OAS's
consequential damages would be inappropriate at this stage.
Accordingly, in the accompanying order the motions of both
parties will be denied.
For the reasons stated in the accompanying opinion, it is
hereby ORDERED that:
(1) Out-a-Sight's Motion for Clarification and
Reconsideration of the July 9, 2004 Order and to
Compel Defendant Radio Fence Distributors to Provide
Discovery Concerning Its Growth Rates for Dealer
Sales in the Northeast States (Docket # 99) is
(2) Radio Systems Corporation's Motion in Limine to
Exclude Any Testimony as to Plaintiff's Damages
(Docket # 100) is DENIED.