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RMS of Wisconsin Inc. v. S-K JV

United States District Court, E.D. Wisconsin

May 16, 2016

RMS OF WISCONSIN, INC., Plaintiff,
v.
S-K JV and J.F. SHEA CONSTRUCTION, INC., Defendants.

DECISION AND ORDER ON DEFENDANTS’ DAUBERT MOTION

NANCY JOSEPH UNITED STATES MAGISTRATE JUDGE

Currently before me is S-K JV and J.F. Shea Construction, Inc.’s motion to bar the testimony of RMS’ damages expert, Michael Betters, pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). (Docket # 89.) I conducted a Daubert hearing on the defendants’ motion on May 10, 2016. Betters testified, as well as the defendants’ damages expert, Terence Rodgers. For the reasons discussed below, the defendants’ motion is granted.

LEGAL STANDARD

The admissibility of expert testimony is governed by Federal Rule of Evidence 702 and Daubert. Ervin v. Johnson & Johnson, Inc., 492 F.3d 901, 904 (7th Cir. 2007). Rule 702 provides that:

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 kn1owledge 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.

The inquiry consists of three general areas: (1) the testimony must be “helpful, ” which dovetails with the relevance requirements of Fed.R.Evid. 401-403; (2) the expert must be qualified by knowledge, skill, experience, training, or education; and (3) the testimony must be reliable and fit the facts of the case. Lyman v. St. Jude Medical S.C., Inc., 580 F.Supp.2d 719, 722 (E.D. Wis. 2008).

Under the third part of the analysis, the Court examines whether (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. Fed.R.Evid. 702. The Court acts “as a ‘gatekeeper’ for expert testimony, only admitting such testimony after receiving satisfactory evidence of its reliability.” Dhillon v. Crown Controls Corp., 269 F.3d 865, 869 (7th Cir. 2001). To help ensure the reliability of expert testimony, the Court considers, for example, whether the theory can be and has been verified by the scientific method through testing, whether the theory has been subjected to peer review, the known or potential rate of error, and the general acceptance of the theory in the scientific community. Cummins v. Lyle Indus., 93 F.3d 362, 368 (7th Cir. 1996). The proponent of the expert bears the burden of demonstrating that the expert’s testimony would satisfy the Daubert standard. Lewis v. CITGO Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009); Fed.R.Evid. 702 advisory committee’s note (2000 Amends.) (“[T]he admissibility of all expert testimony is governed by the principles of Rule 104(a). Under that Rule, the proponent has the burden of establishing that the pertinent admissibility requirements are met by a preponderance of the evidence.”).

ANALYSIS

RMS seeks to admit expert evidence of its damages stemming from the defendants’ alleged breach of the subcontract, including lost profits and other categories of damages. (Daubert Hearing, Pl.’s Ex. 1, Ex. I at 95.)[1] It offers the opinion of Michael Betters who opines that RMS’ total damages amount to $1, 774, 540.00; the bulk ($1, 543, 523.17) of this consists of lost profits. (Id.) The defendants challenge Betters’ expert opinion principally on his calculation of RMS’ projected lost profits from the Indianapolis Project; however, they also challenge his opinion regarding RMS’ other alleged categories of damages. I will address each in turn.

1. Lost Profits

As a preliminary matter, the defendants do not challenge Betters’ qualifications to render an expert opinion on lost profits. However, it is worth noting Betters’ experience here. Betters is a Certified Management Accountant and has been operating Betters & Associates, SC since 1992. (Declaration of Michael Betters (“Betters Decl.”) ¶ 2, Ex. 1, Docket #119-1.) Betters has worked as a tax preparer and provided outside accounting services for RMS since May 2005. (Id.)

Betters testified that every industry calculates lost profits differently. (12:10:25-12:10:31.)[2] The defendants’ damages expert, Terence Rodgers, similarly testified that the calculation of lost profits depends on the industry. (1:38:16-1:39:06.) Betters testified that his past experience of calculating lost profits included two cases of calculating lost revenue while the businesses were closed after fire losses, one case of calculating lost revenue while a business was closed after a flood loss, and a valuation of a business for purposes of determining a couple’s assets for a divorce. (9:21:03-9:22:12.) He acknowledged that he has never before put together a lost profits report “to [the] extent” of the one he completed for RMS. (9:22:12-9:22:18.) Thus, Betters has not previously offered expert lost profit opinion in a construction industry case. Nonetheless, “[g]enerally speaking, expert qualifications are liberally construed” Rondout Valley Cent. Sch. Dist. v. Coneco Corp., 321 F.Supp.2d 469, 474 (N.D.N.Y. 2004), and as indicated earlier, defendants do not challenge Betters’ qualifications. Accordingly, if qualifications were the only shortcoming, Betters’ testimony might be admissible. However, since his testimony will be excluded for other reasons, I will not further address his qualifications.

The crux of the problem here is that Betters’ opinion is not based on sufficient facts or data. First, in calculating RMS’ expenses, Betters begins with historical data from RMS’ past contract with the defendants on the Milwaukee Deep Tunnel Project. (Declaration of Jessica Farley ¶ 3, Deposition of Michael Betters (“Betters Dep.”), Ex. B, Docket #91-2 at 55, 112-13.) This use of historical data may make sense if both contracts were lump sum contracts. However, the parties do not dispute that the Milwaukee Project was done on a time and materials basis (Pl.’s Resp. to Def.’s Add. Proposed Material Facts ¶ 2, Docket # 130), and Betters acknowledged that while lump sum contracts can be more profitable, they require the subcontractor to take on more risk, including the risk of making no profit (Betters Dep. at 129-30). This, however, is not a risk with a time and materials contract. (Id. at 130.) Betters testified that he had no historical data as to RMS’ ...


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