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Keystone Transportation Solutions, LLC v. Northwest Hardwoods, Inc.

United States District Court, W.D. Virginia, Harrisonburg Division

April 22, 2019

KEYSTONE TRANSPORTATION SOLUTIONS, LLC, Plaintiff,
v.
NORTHWEST HARDWOODS, INC., et al., Defendant.

          MEMORANDUM OPINION

          ELIZABETH K. DILLON, UNITED STATES DISTRICT JUDGE

         Pending before the court are defendants' motions to exclude plaintiff's proffered expert, Brian Burns, and to strike Burns's rebuttal report. (Dkt. Nos. 66, 70.) For the reasons set forth below, the court will deny the motion to exclude Burns as an expert witness and deny the motion to exclude Burns's rebuttal expert report.

         I. BACKGROUND[1]

         Keystone was a logistics company that specialized in the export of forest products and operated from the Inland Port of Virginia (VIP). Leading up to its creation, Keystone's founders conducted research about transportation inefficiencies in the forest products market. Specifically, they found that the industry's reliance on trucking, with greater weight restrictions and increased fumigation costs, was inefficient. This research, and the experience gained over the first few years of Keystone's existence, led Steffens to develop the “Shipper Savings Model” (SSM). Steffens considered the SSM to be Keystone's most valuable trade secret. SSM's “high level conclusions” were not unique, but its specific findings on savings were confidential. Keystone's model could only be conducted at this specific site at the VIP-any attempted replication elsewhere would suffer from the same inefficiencies originally identified by Keystone.

         Keystone began negotiations regarding a business relationship with Northwest Hardwoods (NWH), a supplier and manufacturer of hardwood, in February 2016. In the months that followed, NWH conducted a “test run” through Keystone's site at the VIP and the parties exchanged information, including the SSM, following the signing of an NDA. Eventually, Keystone presented an offer for its purchase to NWH. NWH rejected that offer, but shortly after, Thomas Mereen, Keystone's president at the time, resigned and went to work at NWH. Unbeknownst to Keystone, NWH was investigating taking over the VIP site itself.

         Keystone then turned its focus to its ongoing negotiations with another party, World Distribution Services (WDS). After the parties entered into a letter of intent for WDS to purchase Keystone's business, WDS rescinded the letter because it had been informed that a notice of default had been sent to Keystone and an unnamed party (NWH) would assume Keystone's license at the VIP. After WDS rescinded the letter of intent, Keystone ceased its operations on March 2, 2017, and on the next day, March 3, 2017, NWH executed a license agreement for Keystone's former premises. Since entering into this license agreement, NWH has performed the log loading services at the VIP.

         Keystone alleges claims against defendants NWH and Mereen that arise from their business dealings and subsequent events. Defendants contend that Keystone was a failing business, the VIP first approached NWH, Keystone had no trade secrets, and defendants did not appropriate or use Keystone's trade secrets or violate the NDA. Keystone retained Brian Burns, director of Dixon Hughes Goodman LLP, to conduct valuation services and quantify economic damages to Keystone allegedly caused by NWH's conduct. Keystone has offered two reports from Burns containing his opinions on the calculation of damages: his November 18, 2018 report and his January 10, 2019 rebuttal report. (Dkt. Nos. 99-2, 99-3.)

         Defendants seek to exclude Burns's testimony, contending that his calculations of three measures of damages (disgorgement of NWH's profits and cost-savings from using trade secrets, reasonable royalty for trade secret use, and loss of business value) are misleading and unreliable because of flawed methodology. Defendants also ask that the court strike Burns's rebuttal report and testimony, contending that it exceeds the scope of rebuttal and presents new opinions to buttress initial opinions after flaws regarding those opinions were mentioned to him.

         II. DISCUSSION

         A. Legal Standards

         Rule 702 of the Federal Rules of Evidence governs admissibility of expert testimony. The testimony of a witness “who is qualified as an expert by knowledge, skill, experience, training, or education” is admissible if: “(1) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact at issue; (2) the testimony is based upon sufficient facts or data; (3) the testimony is the product of reliable principles and methods; and (4) the expert has reliably applied the principles and methods to the facts of the case.” Fed.R.Evid. 702.

         After an individual qualifies as an expert, this court has an obligation under Daubert to act as a gatekeeper and ensure that any testimony concerning scientific, technical, or other specialized knowledge offered in support of a party's claim is “not only relevant, but reliable.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993); Kuhmo Tire Co. v. Carmichael, 526 U.S. 137, 147 (1999) (quoting same). When testimony is based upon “technical” or “other specialized knowledge, ” it is admissible if: (1) the expert is qualified to testify competently regarding the matters he intends to address; (2) his methodology is sufficiently reliable; and (3) the testimony will assist the trier of fact by bringing the expert's knowledge to bear upon a fact in issue. See Daubert, 509 U.S. at 589-91. Thus, the court must determine whether the expert's reasoning and methodology underlying his testimony is valid, and whether that reasoning or methodology was applied reliably to the facts, so as to be relevant and helpful to the jury. See Id. at 591-92; Kumho Tire Co., 526 U.S. at 147.

         The proponent of the testimony must establish its admissibility, although it need not prove its expert's theory is correct. Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001); Maryland Cas. Co. v. Therm-O-Disc, Inc., 137 F.3d 780, 783 (4th Cir. 1998). Indeed, “[v]igorous cross examination, presentation of contrary evidence and careful instruction on the burden of proof are traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596. Nonetheless, “[t]he main purpose of Daubert exclusion is to protect juries from being swayed by dubious scientific testimony.” Nease v. Ford Motor Co., 848 F.3d 219, 2131 (4th Cir. 2017) (citation omitted).

         The Fourth Circuit has explained the Daubert standard as a “two-step gatekeeping function” required of trial courts. First, the trial court must ask whether proffered scientific evidence is valid and reliable. United States v. Barnette, 211 F.3d 803, 815 (4th Cir. 2000). Second, the court asks whether the evidence will help the trier of fact, which is generally a question of relevance, or “fit”: assuming the evidence is reliable, will it “assist the trier of fact to understand or determine a fact in issue.” Maryland Cas. Co., 137 F.3d at 784 (quoting Daubert, 509 U.S. at 592). The court's role in limiting expert testimony is ...


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