United States District Court, D. New Jersey, Camden Vicinage
June 14, 2005.
KOCH MATERIALS COMPANY, Plaintiff(s),
SHORE SLURRY SEAL, INC., et al, Defendant(s).
The opinion of the court was delivered by: ROBERT KUGLER, Magistrate Judge
Plaintiff Koch Materials Company ("Koch") filed a Motion In
Limine to exclude the expert testimony of Brian Blonder, a
damages witness retained by defendant Shore Slurry Seal, Inc.,
and Asphalt Paving Systems, Inc. ("Shore"). Shore submitted a
Brief and Exhibits in opposition. The Court held a hearing on
June 9, 2005.
At that time, the Court denied Koch's Motion as to Blonder's
opinion regarding damages he claimed Shore suffered on thirty-two
jobs it never bid. However, the Court reserved decision on two
other issues: (1) Blonder's foundation and methodology in
arriving at an opinion on lost profits on the Exclusive Supply
Agreement ("ESA") from Koch allegedly overcharging Shore for
emulsion, and (2) Blonder's foundation and analysis regarding the
Novachip license. Shore asked for and received permission to
supplement the record on these issues, which it did. Shore also
submitted an affidavit of Brian Blonder. Koch responded with its
own supplemental brief. Trial begins on June 20, 2005. This
Opinion supplements the Court's on-the-record comments made at
the hearing on June 9, 2005. For the reasons which follow, the
Court Grants the balance of Koch's Motion. Initially, the Court notes and rejects Shore's request for yet
another Daubert hearing. Shore, despite counsel's assertions to
the contrary, knew one of the Motions being considered on June 9,
2005, was Koch's attack on its expert. As noted, the Court also
gave Shore the opportunity to supplement its submissions based
entirely on Shore's representation that the matters the Court
inquired about were in the discovery record and Shore would
provide citations. Nothing more is required. See Padillas v.
Stork-Gamco, Inc., 186 F.3d. 412, (3d. Cir. 1999).
EXCLUSIVE SUPPLY AGREEMENT
This claim focused on that provision of the ESA wherein Koch
promised it would give Shore the best price it offered any Shore
competitor during a two-week period. The parties call it the
"most favored nation" clause. On its publicly bid contracts which
were awarded to the lowest responsible bidder, Shore claims Koch
charged Shore more for the emulsion than Koch charged Shore's
competitors. Thus, Shore claims a violation of the above clause.
That "overcharge" translates, according to Blonder and Shore,
to lower profits than Shore would otherwise have earned. It's a
simple equation: lower costs = greater profits. The lost profit
thus equates exactly with the alleged overcharge. Proof of that
proposition is another matter.
Unfortunately, Shore explicitly disclaims the easier case
bids lost to a lower bidder. One presumably could recalculate
Shore's losing bids by substituting the promised lower cost for
emulsion. As the winning bidder and bid is publicly known, Shore
could easily ascertain whether a lower bid would have won that
contract. Thus taking a historical average of profit on
successful contracts, an expert could determine how much profit
Shore lost on unsuccessful bids it would win had Koch charged the
right price. But nothing in this case is destined to be easy.
Shore seeks only "profits" for the bids it won and performed.
A simple example will illustrate the issue facing Blonder.
Suppose Smith pays $2.00 for component parts. It uses that number
in formulating a bid on a project where the lowest bidder wins
the contract. Smith wins the bid, performs the contract, and
makes a $10.00 profit. Suppose further that sometime later Smith learns it was overcharged for
the component part and should only have paid $1.00 not $2.00.
Does that necessarily mean, without more, that Smith would have
earned a profit of $11.00 on this contract? Maybe, and maybe not.
It depends on how Smith formulated the bid. If Smith merely would
have built the $1 savings on the part into a $1 lower bid, there
was no effect on the profit. Without an analysis of Smith's
bidding procedure, its cost structure, and profit margin, one
cannot be sure if there was any effect on the profit.
The point is that some analysis is necessary before concluding
that a lower cost equates to a higher profit in exactly the same
amount. Blonder did no such analysis. There is no way to know
whether Shore would have submitted a bid lower by the exact
amount of overcharge, half of the lower price, or any percentage
of the lower price. Blonder simply does not know what Shore would
have done with a lower component cost. The Court is unaware of
any principle of accounting or economics that automatically
equates, without more in a bidding situation such as this, a
lower component cost with an equally higher profit. And Shore,
whose burden it is, points to none.
Despite counsel's promise, the supplemental brief fails to
answer this question. Much is made of Shore's unhappiness with
Koch's alleged refusal to guarantee any price quotes over the
life of the contract, thereby exposing Shore to risk of price
fluctuations. That was not helpful and did not answer the
question of what Shore would have done with a lower component
cost. Nor is there any evidence Blonder used this information in
arriving at his opinions.
Consequently, Blonder's opinion on lost profits from the ESA
lacks a proper foundation and the methodology of equating lower
costs with equally higher profits is no methodology at all. It's
an unwarranted assumption.
Koch's Motion to exclude Blonder's opinion of lost profits on
the ESA is GRANTED. NOVACHIP
Novachip is a paving process patented by Scrug, a French
company. Scrug licensed Shore to use the Novachip process in most
of the United States. As part of a complicated transaction, Koch
acquired this license from Shore for $4 million. However, Shore
claims as part of its counterclaim it was "fraudulently induced"
to assign the license to Koch and seeks the profits it claims it
would have earned had it kept the license. Blonder gives an
opinion as to that amount.
The difficulty comes in Blonder's repeated comparisons of Shore
Shore would have continued to earn royalties from
sub-licensing agreements with users of the valuable
Novachip technology in much the same way that Koch
did from 1998 through 2005." Blonder Report, 1/9/04,
It is therefore reasonable to expect that Shore . . .
would have kept the Novachip technology license with
Scrug and obtained additional agreements with
sublicensees similar to those obtained by Koch from
1998 through 2002 ¶ 51.
And Blonder assumes that because Koch claims to have applied
40,000,000 square yards of Novachip in the U.S. by 2003, Shore
would have done at least as much had it retained the license.
See ¶¶ 53,54.
Blonder's recent affidavit continues the comparison:
This provides clear evidence of the licensing
potential of Shore and supports the reasonable
assumption that Shore could have licensed at levels
similar to Koch, if not even greater levels, if it
maintained rights to license in the same territory
acquired by Koch. Blonder Aff., ¶ 8.
When asked by the Court about these comparisons to Koch, and
what information Blonder had about Koch's efforts to market the
license, and thus the basis of Blonder's assumption, counsel for
Shore replied that Blonder really wasn't comparing the two.
Rather he was doing a projection based upon the history of Shore's efforts to
sub-license the technology before and after assignment of the
license. Because that is not apparent from Blonder's report on
the matters presented in Shore's brief and exhibits, Shore was
given leave to supplement the record.
A comparison with a sufficiently similar company can meet the
methodology requirements of Daubert, as could a projection
based on historical data. But neither Blonder's report nor the
discovery relied upon do either. The crux of the problem is that
Blonder starts everything with the 40,000,000, square yard figure
and calculates from there. He simply assumes, with no real
analysis, that Shore would have done at least as much.
In its supplemental submissions, Shore highlights certain
efforts it undertook to expand its Novachip business and claims
Blonder "considered and relied" upon this information. Frankly,
that is not apparent. Moreover, must of this information is
simply a rehash of what appeared in the original brief in
Blonder acknowledges he did no independent analysis of Koch's
Novachip business. Nor did he do any real analysis of Shore's
efforts to market Novachip and how it compared with Koch's. He
simply acknowledged there were some efforts by Shore, a fact not
really in dispute. Rather than scientifically comparing Koch and
Shore, he simply assumes Shore could do what Koch did.
There is no doubt that a proper expert using sound methodology
could better project a loss based on Shore's history or make a
valid comparison with Koch. Blonder did neither. There was no
methodology applied to these critical areas. He simply made
Therefore, Koch's Motion to exclude Blonder from testifying
about Novachip damages is GRANTED. An Order will enter.
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