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ConsulNet Computing, Inc. v. Moore

December 9, 2008


The opinion of the court was delivered by: Louis H. Pollak Pollak, J.


The liability issues in this case were resolved by a jury trial that took place during April, 2008 and May, 2008. This court bifurcated the damages phase of the case, and those issues will be decided following a bench trial. Before the court are the parties' cross-motions in limine to exclude testimony at that bench trial. On October 15, 2008, plaintiff filed its Omnibus Motion in Limine, and defendants filed three separate motions in limine. See Docket Nos. 227, 228-230.*fn1 Both parties have filed responses. See Docket Nos. 233, 234.

I. Background

The case-in-chief concerns two companies in the business of creating websites for real estate agents. In brief, plaintiff ConsulNet Computing, Inc., d/b/a Success Website ("ConsulNet"), alleged that defendant Megel David Moore posed as a real estate agent and signed a contract for a ConsulNet website; that Moore and his company, defendant Dynamic Investment Group, Inc., d/b/a Web Agent Solutions ("DIG"), started their business by copying plaintiff's websites; and that defendants successfully marketed their websites to plaintiff's clients (and others) as cheaper versions of plaintiff's websites. These actions, plaintiff claimed, amounted to (1) breach of Moore's contract with ConsulNet, under Pennsylvania law; (2) intentional breach of contract and the duty of good faith, under Canadian law; (3) violations of U.S. and Canadian copyright law; and (4) intentional interference with ConsulNet's contractual relationships with its clients, under Pennsylvania law.

After hearing two weeks of evidence, a jury returned special interrogatories and verdict findings that Moore was liable for breach of contract; that both defendants were liable for intentional interference with contractual relations; that defendants' conduct with respect to the intentional interference tort was "outrageous"; that both defendants were liable for some, but not all, of the alleged instances of copyright infringement;*fn2 and that defendant infringed on one or more Canadian copyrights of the ConsulNet website. See Jury Verdict Form, Docket No. 189 (filed May 12, 2008). On July 30, 2008, this court denied defendants' Rule 59 motions. See Docket No. 217.

Following trial, this court granted ConsulNet's motion for a preliminary injunction on June 6, 2008. See Order, Docket No. 206. The preliminary injunction forbid defendants "from direct and personalized solicitation, or acceptance, of any further clients for the provision of any real estate website or related product or service if such clients purchased goods or services from either Craig Proctor Productions, Inc., or ConsulNet Computing, Inc., or attended a Craig Proctor Seminar, since 6/1/03." Id.*fn3

ConsulNet has moved to 1) exclude certain testimony by defendants' damages expert, Richard Gering, and 2) preclude defendants from trying certain issues that, according to ConsulNet, were already resolved by the trial on liability.*fn4 Defendants have moved to 1) exclude the report of ConsulNet's expert witness Raymond F. Dovell; 2) exclude certain portions of the errata sheets submitted by ConsulNet in the wake of ConsulNet expert Wayne D. Hoeberlein's deposition on August 11, 2008; and 3) preclude ConsulNet's experts from providing any expert testimony regarding damages alleged by ConsulNet in connection with ConsulNet's providing free websites to its Platinum level clients. For the reasons that follow, the court will grant plaintiff's motion in part and deny all three of defendants' motions.

II. ConsulNet's Motion

ConsulNet seeks to exclude those portions of Gering's testimony a) identifying over one million dollars in "business expenses" that Gering says should be deducted from ConsulNet's disgorgement recovery;*fn5 b) stating that there should be certain deductions or exclusions for damages that ConsulNet's expert does not support with adequate causation evidence; c) contending that damages should be apportioned between the "front end" and "back end" of defendants' websites and individual webpages; and d) based on hearsay evidence, exclusively on conversations with David Moore, or on deposition testimony and/or other non-record evidence. ConsulNet asks this court to enter its proposed order, which ConsulNet contends would properly confine the scope of trial to issues of damages and injunctive relief.

A. Business Expense Deductions

ConsulNet contends that Gering relies upon insufficiently specific evidence of defendants' business expenses. ConsulNet further contends that defendants' claimed business expense deductions should be limited because defendants' copyright infringement was "willful."

Defendants have the burden of proving any legitimate business expenses, and they must meet that burden by a showing of "'some specificity.'" See Allen-Myland v. IBM Corp., 770 F. Supp. 1014, 1024 (E.D. Pa. 1991) (citations omitted). However, the Third Circuit has expressed a strong preference for the admissibility of expert testimony under Federal Rule of Evidence 702. See Kannankeril v. Terminix Intern., Inc., 128 F.3d 802, 806 (3d Cir. 1997) (citations omitted). "As long as an expert's scientific testimony rests upon good grounds, based on what is known, it should be tested by the adversary process - competing expert testimony and active cross-examination - rather than excluded from jurors' scrutiny for fear that they will not grasp its complexities or satisfactorily weigh its inadequacies." United States v. Mitchell, 365 F.3d 215, 244 (3d Cir. 2004) (quoting Ruiz-Troche v. Pepsi Cola Bottling Co., 161 F.3d 77, 85 (1st Cir. 1998)).

No Third Circuit case mandates that, in order to be admissible, allegations of business expense deductions must include any specific documents. In one Second Circuit case relied on by ConsulNet, despite the fact that defendant's "evidence of its costs was sorely lacking in documentation," the court actually affirmed a deduction. See Gaste v. Kaiserman, 863 F.2d 1061, 1070-71 (2d Cir. 1988) (declining to overturn a jury verdict that granted a lower reduction in costs than defendants had requested). One court has held explicitly that the burden of proving legitimate business expenses is a matter to be determined by a factfinder, not through a motion in limine. See Malletier v. Dooney & Bourke, Inc., 525 F. Supp.2d 558, 657 (S.D.N.Y. 2007).

In the instant matter, defendants' requested business expense deductions are supported by their production of a summary expense report, cancelled checks, and credit card statements, and defendants represent that these statements will be further supported by testimony at trial. And while a court's finding that a defendant's conduct was "willful" can affect statutory damages under the Copyright Act, 18 U.S.C. § 504, the jury made no finding at the liability stage that defendants' copyright infringement was "willful" or otherwise knowing, reckless, or deliberate.*fn6 See Jury Verdict Form, Docket No. 189. Thus, Gering's testimony on business expenses will not be excluded, and any deficiency in corroboration will go to the weight of the evidence at trial.

2. Causation/Relitigation

The crux of ConsulNet's argument about "relitigation" is that because each of ConsulNet's successful claims at trial necessarily incorporated causation, the issue of causation should not be raised at the trial about damages. ConsulNet identifies, and objects to, numerous instances where Gering's expert report alleges that ConsulNet's evidence does not sufficiently show a causal link between defendants' malfeasance and ConsulNet's damages. Besides the Gering report's allegations of insufficient causation, ConsulNet also objects to defendants' plans to offer other testimony at trial that ConsulNet believes attempts to retry the issue of liability.*fn7

Each of ConsulNet's successful breach of contract and tortious interference claims included, as an essential element, a finding that damage was caused to ConsulNet. These successful claims did not, however, resolve the extent of those damages.

The copyright claims in this case require findings on damages that consider the issue of attribution. A copyright owner is only permitted to recover "profits of the infringer that are attributable to the infringement." 17 U.S.C. § 504(b) (the "Copyright Act"). Even in a bifurcated case where, as here, liability for infringement has been proven, courts should consider the extent of the infringer's profits. See, e.g., Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514 (4th Cir. 2003) (considering the extent to which an infringer's profits were actually attributable to the infringement).

This court will, therefore, permit evidence of causation that goes to the issue of the extent of damages attributable to defendants. The issue for this court to resolve is whether any of the proposed evidence or testimony challenged by ConsulNet directly contradicts the jury verdict regarding liability. None of it does.

In ¶2 of its proposed order, ConsulNet challenges five specific statements in the Gering Report.*fn8 None of these five statements alleges a general lack of liability on the part of defendants. Three of the statements identified by ConsulNet attack only the methodology of ConsulNet's expert; they do not state that ConsulNet cannot obtain damages. These three statements -- labeled "a," "b," and "e" in ConsulNet's proposed order -- plainly do not contradict the jury's verdict.

The remaining two statements identified by ConsulNet do conclude that there can be "no damages" for a certain category of harm, but they do so without challenging any conclusion reached by the jury. These two statements -- labeled "c" and "d" in ConsulNet's proposed order -- challenge the propriety of awarding ConsulNet damages on the basis of Exhibit F to the Hoeberlein report. Exhibit F details Hoeberlein's calculation of damages in connection with ConsulNet's alleged need to provide free websites to its Platinum clients due to defendants' unlawful actions. Whether the provision of free websites is attributable to defendants is an entirely distinct question from whether defendants are liable at all in the causes of action already determined. Assessing damages in connection with the free websites requires determining whether defendants' wrongful acts -- the unlawfulness of which cannot be challenged -- were in fact the cause of ConsulNet's decision to provide free websites. This remains an open question.

The balance of the expert testimony and other evidence that ConsulNet objects to is permissible to the extent that it is admitted for the limited purpose of determining the extent of damages, as opposed to the existence of damages. Particularly in view of the fact that ConsulNet's proposed order does not specify exactly what testimony it wishes to bar at trial, a limiting ...

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