KASELAAN D'ANGELO ASSOCIATES, INC., v. D'ANGELO, (D.N.J. 1999)

MEMORANDUM OPINION

SIMANDLE, District Judge.

Presently before the court is plaintiffs' motion for reconsideration of this court's decision of December 31, 1997, in which, inter alia, this court excluded the testimony by plaintiffs' expert witnesses Philip Horowitz and Robert McClammy, who have been offered by plaintiffs to testify regarding damages. For the reasons explained below, the exclusion of Horowitz's testimony shall not be reconsidered, but the exclusion of McClammy's testimony shall be reconsidered and vacated.

I. Standard for Motion for Reconsideration

This motion for reconsideration is governed by L. Civ.R. 7.1(g), which states:

A motion for reargument shall be served and filed within 10 days after the entry of the order or judgment on the original motion by the Judge or Magistrate Judge. There shall be served with the notice a brief setting forth concisely the matters or controlling decisions which counsel believes the Judge or Magistrate Judge has overlooked. No oral argument shall be heard unless the Judge or Magistrate Judge grants the motion and specifically directs that the matter shall be argued orally.

Reconsideration is granted sparingly, and only where the movant demonstrates factual or legal matters or controlling decisions which the Court's Opinion overlooked. McGarry v. Resolution Trust Corp., 909 F. Supp. 241, 244 (D.N.J. 1995); Egloff v. New Jersey Air Nat. Guard, 684 F. Supp. 1275, 1279 (D.N.J. 1988). The motion for reconsideration is not an opportunity, long after an issue has been joined and the matter decided, to expand the record on reargument beyond matters originally placed before the court. Resorts Int'l v. Greate Bay Hotel and Casino, Inc., 830 F. Supp. 826, 831 (D.N.J. 1992); Florham Park Chevron, Inc. v. Chevron U.S.A., Inc., 680 F. Supp. 159, 162 (D.N.J. 1988). Matters which were not brought before the court could not have been "overlooked" by the judge, and may not become grist for a fortified motion under L. Civ.R. 7.1(g).

II. Discussion

In December of last year, this court issued a forty page opinion in which we painstakingly described the expert reports proffered by plaintiffs, as well as the depositions of these experts, and analyzed in detail the numerous reasons why the expert testimony must be precluded. (Slip Op. dated December 31, 1997.)

Magistrate Judge Kugler had previously found plaintiffs' expert reports to be deficient under Fed.R.Civ.P. 26(a)(2)(B), and had granted defendants leave to depose plaintiffs' experts with costs to be borne by plaintiffs. (Id. at 16.)

By order of Judge Kugler, pursuant to stipulation of plaintiffs' attorney, neither of plaintiffs' experts were to give any opinion testimony at trial regarding causation. (Id. at 16.) In our Opinion, we noted that "[p]laintiffs have offered no explanation for this bizarre promise, and we can only assume that plaintiffs realized that they were unable to offer any reliable bases for the conclusions regarding causation reached by their experts in their reports." (Id.) As our Opinion made clear, however, our impression of the stipulation as "bizarre" was based not upon some misplaced expectation that damages experts must always testify regarding causation, but rather was based upon the fact that the reports submitted by both experts were so heavily reliant upon assumptions regarding causation. As this court explained:

It appears that this case — in which plaintiffs' counsel has simultaneously (a) indicated that her experts will not testify regarding causation, while (b) submitting expert reports and expert deposition testimony riddled with assumptions and conclusions regarding causation — poses a fairly unique situation. Our research has failed to reveal any cases in which such inexplicably contradictory, confusing and incomplete analysis was submitted as proposed expert testimony.

(Id. at 23.) Both experts had premised their reports and testimony upon the assumption that the defendants' conduct was the sole cause of the decline in profitability and value of KD's business over the relevant period, and neither expert had created any mechanism in their analysis for separating out this potential cause from all the other potential causal factors — such as, for example, changes in regional or industry-specific economic conditions, or poor management decisions by decision-makers other than defendants. The court mentioned this failure as one of the many causes for concern regarding the reliability and relevance of both experts' testimony. The court then went on to separately analyze in detail the testimony offered by each expert.

A. Horowitz Testimony

The court first examined the report and revised report submitted by plaintiffs' expert Phillip Horowitz, a certified business appraiser. (Id. at 7.) The purpose of his reports were, according to Horowitz, to determine the amount of damages in terms of reduced earnings of KD and in terms of reduction in sale price of KD. (Id.) The methodology employed by Horowitz to assess lost earnings was to compare the actual financial condition of KD for the years 1989 through 1994 with the "forecast condition" of the company — which forecast was based upon KD's historical conditions, and on the assumption that KD would have grown at the median growth rate of firms represented in an unrelated survey. (Id. at 8-9.) The court expressed concern regarding the report's failure to clarify what data formed the basis of the report. (Id. at 8, n. 3.) The court likewise questioned the reliability of the data relied upon by Horowitz for a comparison population, since that population was apparently not similar in any relevant respect to the KD business. (Id. at 9, n. 5, and at 12, 28.) In addition, the comparison population data relied upon in the first report was problematic because it was anonymous and therefore essentially unverifiable, whereas the comparison population data relied upon in the revised report was problematic because it was extremely incomplete. (Id. at 9, n. 6, and at 11-12.)

With regard to the data relied upon by Horowitz in calculating loss in sale price, we stated that "Horowitz' collection of six reports of sales of companies as the basis for defining industry-wide financial performance is so incomplete and anecdotal as to fail each attribute of proper survey testimony." (Id. at 27 (citing, inter alia, Manual for Complex Litigation, Third, § 21.493 (1995)). In addition, the court found that Horowitz had not reliably applied his own selected methodology for determining loss to sale price, due to the incompleteness of his data, thereby rendering his testimony so unreliable as to be inadmissible under Rule 702 of the Federal Rules of Evidence. (Id. at 29-30.)

With regard to Horowitz' calculation of lost profits, the court found that the analysis was irrelevant and unhelpful. The court noted that the analysis had been done using apparently irrelevant data. (Id. at 9, n. 5.) The court further noted that the methodology Horowitz employed to calculate lost profits relies heavily upon certain assumptions that cannot be verified or tested because they relate to causation, and, pursuant to the plaintiffs' stipulation, Horowitz cannot testify regarding causation. (Id. at 31-34.) As the court pointed out, Horowitz had not provided the analytical means to explore through cross examination the various differential factors not addressed in the report which might have contributed to the business's decline in profitability. (Id. at 34.) Finally, the court questioned the relevance and usefulness of Horowitz's analysis in light of the fact that it was premised upon essentially untestable assumptions, (untestable because they relate to causation, and Horowitz is not permitted to testify regarding causation). (Id. at 34-36.)

The court noted that it was not entirely clear whether there was even a lost profits analysis before us, since plaintiffs had purported to "withdraw" Horowitz's initial report, yet Horowitz' second report contained conclusions regarding lost profits without explaining the analysis used to reach these conclusions, which suggests that plaintiffs were in fact continuing to rely upon the initial report. ( Id . at 31, n. 19.) The plaintiffs' withdrawal of the report containing lost profits analysis would on its own have been sufficient grounds for the exclusion of lost profits testimony from Horowitz. Nonetheless, the court went on to describe the additional reasons why the analysis provided in the initial report was deficient.

Upon reflection, the court concedes that we may have gone too far on this point. That plaintiffs' experts would not offer opinion testimony regarding causation does not mean that it would be impossible for defendants to cross examine plaintiffs' experts regarding the ways in which their conclusions would have differed had their analysis been based on different conclusions. That the court has reconsidered its thinking on this point does not, however, change the outcome as to Horowitz, as the many other bases on which the testimony was excluded remain undisturbed.

In the end, however, the court's decision to exclude Horowitz's testimony was premised upon two primary conclusions: First, that the data relied upon by Horowitz was unreliable, in violation of Rule 703 of the Federal Rules of Evidence, thereby rendering the testimony itself so unhelpful and unreliable that it could not be admitted under Rule 702 of the Federal Rules of Evidence; and second, that Horowitz' application of his own methodology was so unreliable as to render his analysis unreliable and unhelpful under Rule 702.

B. McClammy Testimony

The court next examined the report submitted by plaintiffs' expert Robert McClammy, former CEO of Hill. The purpose of this report was apparently to establish the damages in terms of declining sales which allegedly resulted from the defendants' actions. (Id. at 13.) Through the use of regression analysis, the report compares the projected revenue of KD with the actual revenue of KD over the relevant time period. (Id.) We noted that the report failed to explain the reason for selecting a 15% growth rate as the projected growth rate of the company for the years 1990 to 1994. (Id.) We likewise expressed concern at the failure to explain the reason for selecting a price to earnings ratio of 25/1 in calculating the lost value of the company, in light of evidence to the contrary. (Id. at 14, and n. 8.) Similar concern was expressed regarding McClammy's failure to explain his assumption that KD would have had the revenue required to acquire other companies and to flourish during an economic downturn, in light of strong evidence to the contrary. (Id. at 15, n. 15.)

The basis for the exclusion of McClammy's testimony is that McClammy, like Horowitz, provided an analysis that was premised upon causation-related assumptions, which assumptions could not be tested, due to plaintiffs' stipulation that their experts would not testify regarding causation.

C. Basis for Motion for Reconsideration

Plaintiffs now assert three grounds for reconsideration. First, that the court erroneously imposed a requirement that an expert who testifies regarding damages must also testify regarding causation; second, that the court overlooked the fact that the experts could be cross-examined regarding the bases for their projections of future earnings; and third, that the court erred in applying a Daubert analysis to plaintiffs' experts, who are financial experts.

As a preliminary matter, we note that the third ground asserted by plaintiffs is without merit, as our decision to exclude plaintiff's expert testimony was not premised upon an evaluation of the reliability of the experts' methodology under Daubert. The court never reached the question whether the selected methodology (as opposed to underlying data and application of selected methodology) of each expert was reliable, and thus the court never applied the reliability factors set forth in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592 (1993), although those factors were mentioned in the preamble to our discussion. (Slip. Op. at 19.) Indeed, the court explicitly emphasized that we were not reaching the question of the reliability of the experts' underlying methodology. (Id. at 22, 25) Thus, to the extent that there is any uncertainty in the Third Circuit regarding the applicability of Daubert to the testimony of financial experts such as McClammy and Horowitz, that uncertainty is of no moment in the instant case.

The first and second grounds for reconsideration asserted by plaintiffs do, however, present a closer question. The court has no doubt of the validity of its determination that Horowitz' testimony was entirely unreliable due to its reliance on unreliable, incomplete, and potentially irrelevant data. As we explained in our opinion, the ability of defendants to cross examine Horowitz regarding the basis of his testimony is insufficient as a means to address the many respects in which Horowitz' analysis is unreliable. As a result, the admission of this testimony, which is based on unreliable and incomplete data, would likely result in undue prejudice and confusion, and Rule 403 therefore also requires the exclusion of this testimony. We will therefore not reconsider our determination that Horowitz's testimony is not admissible under Federal Rules of Evidence 702 and 703.

It appears, however, that with regard to the expert testimony of McClammy, the court may have overemphasized the significance of McClammy's inability to testify regarding causation, while simultaneously overlooking the extent to which the weaknesses in McClammy's analysis could be addressed through cross-examination by defendants. As explained above, contrary to plaintiffs' assertions, this court never read into Rule 702 a requirement that experts who testify regarding damages must also testify regarding causation. Rather, our concern was that without eliminating the other possible causes of harm to KD which might have contributed to KD's decline in sales, the magnitude of the decline in KD's sales found by McClammy is not on its own relevant. As noted supra at n. 2, it appears that we underestimated the potential for this problem to be cured through cross-examination. We mistakenly asserted that because McClammy could not offer opinion testimony regarding causation, defendants would be precluded from exploring McClammy's causation-related assumptions. McClammy may assume other facts in evidence relating to causation. If those facts are not proved up, his opinion may fail. Certainly, it is possible for defendants to cross-examine McClammy regarding how his conclusions would change if his own causation-related assumptions were replaced with a different set of assumptions. Unlike Horowitz, McClammy's analysis was not premised upon incomplete, unreliable, and irrelevant data in violation of Rule 703 of the Rules of Evidence. Rather, it was premised upon a series of unsupported causation-related conclusions. Upon reconsideration, it appears that the validity of McClammy's assumptions is a question that should go to the weight of the evidence, rather than to its admissibility, and it must await the trial when the facts upon which his opinion rests have been adduced through other competent evidence. We therefore vacate our previous decision to exclude McClammy's testimony regarding damages.

III. Conclusion

For the reasons set forth above, plaintiff's motion for reconsideration shall be denied as to the testimony of Horowitz, and shall be granted as to the testimony of McClammy. That portion of our order dated December 31, 1997 which precluded the expert testimony of Robert McClammy shall therefore be vacated, and McClammy shall be permitted to testify regarding damages at trial.

The plaintiffs, Kaselaan D'Angelo Associates, Inc. and Hill International, Inc. (hereafter "KD" and "Hill"), have moved for default judgment pursuant to Rule 55(b), Federal Rules of Civil Procedure, against defendants Texas Gulf Industries, Inc. ("TGI") and TGI Stephens, Inc. ("TGI Stephens"). These defendants were served with initial process, in the Amended Complaint on February 25, 1994, and the Clerk entered default against TGI and TGI Stephens on fill in the date pursuant to Fed.R.Civ.P. 55(a) for failure to respond or otherwise plead. Defendants TGI and TGI Stephens have failed to appear and defend at any time.

A previous motion by plaintiffs for default judgment against TGI and TGI Stephens was denied without prejudice on fill in date here by Opinion and Order filed fill in date here because the motion did not include particularized sworn averments of fact necessary to establish liability and damages under Rule 55(b). Id . The present motion has cured those procedural defects.

The present motion for default judgment was filed on February 16, 1999, and copies of the motion and supporting papers were served upon TGI and TGI Stephens by overnight delivery sent on that date. [Cert. of Service, filed Feb. 16, 1999.] The time for opposition to this motion has also expired, and again no appearance has been made in behalf of these defendants in opposition.

Plaintiffs' claims against all other defendants have previously been resolved by settlements

Hill and KD have entered into settlement agreements with other parties having a value of $1,530,000, consisting of $150,000 by CRC Environmental and Ron Allums, $500,000 by Warren Soffian in Superior Court of New Jersey litigation, $630,000 by the Texas defendants (Tyrrell Garth, Esquire, Philip Clayton, Moore, Landry, Garth Jones, now known as Moore, Landry, Garth, Jones, Burmeister Hulett, L.L.P., and the Network Capital Management Group), and $250,000 by William "Chip" D'Angelo. [See Aff. of Janice Richter, Feb. 16, 1999.]