The opinion of the court was delivered by: Nora Barry Fischer United States District Judge
This matter is before the Court on a Motion to Strike Plaintiff's Most Recent "Statement of Damages" in the Nature of a "Daubert" Motion [DE 148], filed by Defendant American Axle & Manufacturing, Inc. (hereinafter, "AAM") on October 15, 2007. For the following reasons, the Court GRANTS in part and DENIES in part said motion.
In a complaint dated July 18, 2002, Plaintiff Autoforge set forth multiple claims against Defendants AAM and General Motors resulting from business dealings involving the manufacture and sale of certain steel forgings. (Docket No. 1). After the disposition of many motions including summary judgment [DE 72] and the settlement/dismissal of defendant General Motors [DE 74 and 75], the following claims remain against AAM: breach of a settlement agreement; breach of contract with respect to the 40006884 Splined Yoke Forging (hereinafter, "6884 Forging"); breach of contract for Idler Arm Supports; and a claim of statutory interest. (See Docket No. 130.) As the instant motion requires the Court to evaluate whether certain testimony is admissible to establish lost profit damages for the 6884 Forging breach of contract claim, a brief recitation of the factual and procedural history of the damages claimed throughout this lawsuit follow.
On September 15, 2005, Plaintiff filed a Pretrial Statement in which it claimed damages for value in diminution of business in an amount of $6,198,766. (Docket No. 76 at 10.)
On April 25, 2006, Plaintiff filed a Supplemental Pretrial Statement claiming that Autoforge is entitled to lost profits in an amount of $2,946,097 as an alternative measure of damages to the claim for diminution of value damages in the initial Pretrial Statement. (Docket No. 94-3.) In support of its lost profits damages claim, Plaintiff submitted an expert report and damages calculation prepared by David Kaplan of Alpern Rosenthal (hereinafter the "Kaplan Report").
On August 8, 2006, Judge McVerry granted in part and denied in part Defendant's Motion in Limine to Exclude Plaintiff's Methodology for Calculating Damages as Improper. (Docket No. 110.) The Court held that Autoforge could not recover value of the business damages under the Michigan Uniform Commercial Code as either consequential or incidental damages. (Docket No. 110 at 2-3.) The Court further held that lost profits damages were recoverable by the Plaintiff, but that "evidence of lost profits beyond December 2002 is impermissibly speculative, and, as the Court stated at the June 13, 2006 Pretrial Conference, the time period for which damages including lost profits may be recoverable will be limited to December, 2002, at trial". (Docket No. 110 at 5.) With regards to defendant's second motion in limine, the Court acknowledged that Plaintiff's recovery of damages are governed by Michigan law, specifically, M.C.L.A. § 440.2708 (corresponding to U.C.C. § 2-708) and held "Plaintiff will be permitted to demonstrate its potential entitlement to lost profits. However, in order to recover lost profits under section 2708(2), Plaintiff must demonstrate that the measure of damages set forth in section 2708(1) is "inadequate" because Plaintiff is a manufacturer of specialty goods that could not be resold in the marketplace. If Plaintiff establishes entitlement to lost profits, it may also be entitled to incidental damages." (Docket No. 110 at 7. (citing M.C.L.A. § 2708(2) and § 2710.))
On March 14, 2007, Judge McVerry granted defendant's motion in limine to exclude the Kaplan Report and any corresponding expert testimony. The Court held that "the expert's damage calculation based on the cross-wedge rolling technology is too speculative and unreliable." (Docket No. 130, at 4.) Further, "Plaintiff's damages claim must be confined to the costs it actually incurred and projected through the utilization of the hammer forge manufacturing technique upon which the original purchase order contract was based." (Docket No. 130, at 4.) On April 9, 2007, Judge McVerry denied Plaintiff's motion to reconsider, holding that it was not abuse of discretion to exclude the plaintiff's expert testimony in the March 14, 2007 Order. (Docket No. 136.)*fn2
On August 10, 2007, Plaintiff filed a Statement of Damages, in which it advised the Court that it "has elected not to establish its damages at trial by using an expert witness and therefore will not be submitting an 'expert report' on damages and lost profits." (Docket No. 141, at 1.) Instead, Plaintiff seeks to rely on Jitendra Nath (hereinafter, "Nath"), the president and principal shareholder of Autoforge, to testify as a business owner and offer lay opinion witness testimony (under Federal Rule of Evidence 701) in order to establish Autoforge's lost profits. (Docket No. 141 at 1.) The Statement of Damages presents Autoforge's claim of $1,726,418 lost profits from the sale of the 6884 Forging for the period of 2000-2002. (Docket No. 141 at 2.) An attached document includes the calculations of lost sales, revenues, profit margin and scrap recovery sales used in determining the claim amount. (Docket No. 141-2.) The calculations page describes the estimated costs and scrap recovery sales of Autoforge as a percentage of the sale price of one 6884 Forging unit ($3.20). (Docket No. 141-2 at 2-5.) The claim amount in the Statement of Damages resulted from the multiplication of estimated revenues for each period (2000, 2001, and 2002) by an estimated profit margin (32.25 %) and the estimated scrap recovery sales (2.73 %). (Docket No. 141-2 at 2-5.) On October 15, 2007, Defendant AAM filed the instant motion, in which AAM asserts that "the purported lay witness opinion testimony of Nath on the issue of lost profits exceeds the scope, not to mention contradicts the clear and unambiguous language of Rule 701", (Docket No. 148, at 2.)*fn3 In particular, Defendant relies upon Lifewise Master Funding v. Telebank, 374 F.3d 917, 929 (10th Cir. 2004), in which the Court held that a Chief Executive Officer's (hereinafter, "C.E.O.") testimony was inadmissible as lay opinion testimony because his testimony was not based on his experience as a businessperson and president of the company. Further, Defendant attempts to distinguish the instant case from Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993), upon which Plaintiff relies and in which the Third Circuit allowed a business owner to testify as to lost profits under Rule 701.*fn4
On October 30, 2007, Plaintiff Autoforge filed its Brief in Opposition to Defendant's Motion to Strike Plaintiff's "Statement of Damages." (Docket No. 153.) Plaintiff argues that, in compliance with Rule 701, "Mr. Nath's testimony does not require scientific, technical or specialized knowledge" but instead "merely requires knowledge of simple math and is based on his rational knowledge of Autoforge's operations." (Docket No. 153, at 2.) Plaintiff contends that Nath prepared the Statement of Damages and its calculations using data from the Autoforge 2000 Income Statement that he had prepared himself. (Docket No. 153 at 4-5.) Further, Nath testified at his deposition that he did not use the Kaplan Report other than to highlight differences between his calculations and that of the excluded expert, and that he used Appendix C of the Kaplan Report only for the sequencing of the Statement of Damages. (Docket No. 153 at 5 (citing Deposition of Jitendra Nath, September 28, 2007,at 11).) The Plaintiff concludes that Nath should be permitted to testify under Rule 701 because the "calculations are based on conventional methods, his personal knowledge and his experience calculating profit margins and preparing income statements while Autoforge was operating." (Docket No. 153 at 11.)
Plaintiff offered Nath's testimony at motion hearings on November 2, 8, and 14, 2007. The following summarizes Nath's testimony at the hearings.
Nath is the founder, President and sole or one-hundred percent (100%) shareholder of Plaintiff Autoforge. (Transcript of Daubert Hearing on November 2, 2007 (hereinafter, "TR-1") at 14.11-24.) Nath's duties at Autoforge included the overall management of the company, preparation of financial statements, and pricing of parts. (TR-1, at 14:25-18:12.)
Prior to his position at Autoforge, Nath had some experience with accounting and also had earned an M.B.A, with three majors in finance, computer information systems and management accounting. (TR-1, at 7:18-14:1.) Nath testified that he personally prepared, with input from his staff, annual and monthly income statements for Autoforge from 1996 onward. (TR-1, at 16:17-24.) Nath routinely conferred with an outside accountant, David Becker, with regards to the income statements that he prepared. (TR- 1, at 16:25-17:23.) The income statements were then used by Nath in the regular course of business "to analyze the operations of the company and to identify areas that needed attention." (TR-1, at 18:2-7.)
Nath also had significant involvement in the pricing of parts for sale at Autoforge, including the final determination of pricing. (TR-1, at 18:8-12.) The typical process used to price parts for sale involved the following: receipt of a request for quotation from a customer; review of the particular part by the engineering, production and quality staff; a meeting to discuss the process used in manufacturing the part and to estimate the production rates on equipment to determine if any additional equipment would be required; and determine after as to Autoforge's cost of production. (TR-1, at 18:13-19:5.) Nath testified that he often produced informal profitability reports during the course of business. (TR-1, at 19:21-21:12.) He stated that he performed profitability studies based on the 6884 Forging, but could not produce any such reports for this litigation. (TR-1, at 140:21-141:9.)
Nath also testified as to the specifics of the Plaintiff's Statement of Damages. (Docket No. 141 and 141-2.) The Statement of Damages was prepared by Nath, with reference to the Autoforge Income Statement, an entry from a publication entitled the Steel Data Book concerning the theoretical weights of steel bars, and from his recollection and experience at Autoforge. (TR-1, at 103:13-105:3.) He also testified that he used the ...