Kars 4 Kids, Inc. v. Am. Can!

Decision Date18 April 2019
Docket NumberCivil Action No. 3:16-cv-4232 (PGS) (DEA),Civil Action No. 3:14-cv-7770 (PGS) (DEA)
PartiesKARS 4 KIDS, INC., Plaintiff, v. AMERICA CAN!, Defendant. AMERICA CAN! Cars for Kids, Plaintiff, v. KARS 4 KIDS, INC., Defendant.
CourtU.S. District Court — District of New Jersey
MEMORANDUM AND ORDER

SHERIDAN, U.S.D.J.

This matter comes before the Court on five in limine motions filed by both Plaintiff/Defendant Kars for Kids and Plaintiff/Defendant America Can!. The Court incorporates herein the facts of this case as set forth in the memorandum on summary judgment, ECF No. 142.

(1) Kars 4 Kids' motion to exclude the opinion of Bryce Cook, America Can!'s expert on damages

Kars 4 Kids seeks to exclude the opinion of Bryce Cook, America Can!'s expert on damages. "Under the Federal Rules of Evidence, a trial judge acts as a 'gatekeeper' to ensure that 'any and all expert testimony or evidence is not only relevant, but also reliable.'" Pineda v. Ford Motor Co., 520 F.3d 237, 243 (3d Cir. 2008) (quoting Kannankeril v. Terminix Int'l Inc., 128 F.3d 802, 806 (3d Cir. 1997)). When faced with a proffer of expert testimony under Federal Rule of Evidence 702, "the trial judge must determine at the outset . . . whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue." Daubert v. Merrell-Dow Pharms., Inc., 509 U.S. 579, 592 (1993). "Rule 702 has three major requirements: (1) the proffered witness must be an expert, i.e., must be qualified; (2) the expert must testify about matters requiring scientific, technical or specialized knowledge; and (3) the expert's testimony must assist the trier of fact." Pineda, 520 F.3d at 244. The parties have not raised any dispute as to Mr. Cook's qualification to testify as an expert.

The proffered testimony must be reliable; that is, "the expert's opinion must be based on the 'methods and procedures of science' rather than on 'subjective belief or unsupported speculation'; the expert must have 'good grounds' for his or her belief." Id. at 742 (quoting Daubert, 509 U.S. at 590). "[S]o long as the process or technique the expert used in formulating the opinion is reliable," such testimony will be deemed admissible. Id. The reliability of an expert's testimony is assessed using an eight-factor test set forth by the Third Circuit:

(1) whether a method consists of a testable hypothesis; (2) whether the method has been subject to peer review; (3) the known or potential rate of error; (4) the existence and maintenance of standards controlling the technique's operation; (5) whether the method is generally accepted; (6) the relationship of the technique to methods which have been established to be reliable; (7) the qualifications of the expert witness testifying based on the methodology; and (8) the non-judicial uses to which the method has been put.

United States v. Mitchell, 365 F.3d 215, 235 (3d Cir. 2004).

"Finally, Rule 702 requires that the expert testimony must fit the issues in the case"; that is, "the expert's testimony must be relevant for the purposes of the case and must assist the trier of fact." Schneider, 320 F.3d at 404. "In assessing whether an expert's proposed testimony 'fits,' weare asking 'whether [the] expert testimony proffered . . . is sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute.'" United States v. Schiff, 602 F.3d 152, 173 (3d Cir. 2010) (citing Daubert, 509 U.S. at 591).

Kars 4 Kids seeks to bar America Can!'s damages expert from testifying, claiming that he "offers nothing more than his subjective belief that, absent Kars 4 Kids' use of the KARS 4 KIDS marks, every single donation Kars 4 Kids received over a nine-year period would have gone to America Can." (Memo. of Law in Support of Pl. Motion In Limine No. 1 to Exclude the Entirety of Bryce R. Cook's Opinions ("Memo in Support of Motion In Limine No. 1"), ECF No. 150-1 at 1). Mr. Cook's report purports to set forth three different types of claims for damages that total America Can!'s claim for damages; they are: a claim for Kars 4 Kids' profits; the royalty that Kars 4 Kids "would have had to pay if [America Can!] had agreed to license the [m]ark"; and the cost of corrective advertising. (Cook Report at 8-10).

Under the Lanham Act, the non-infringing party may recover as damages "(1) [the infringer's] profits, (2) any damages sustained by the [non-infringer], and (3) the costs of the action." 15 U.S.C. § 1117(a). "In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed." 15 U.S.C. § 1117(a).

First, America Can! seeks to recover the profits of Kars 4 Kids. Cook determined that the revenues of Kars 4 Kids would be determined by adding up the revenues reported on Kars 4 Kids' annual Form 990's. In order to confirm the revenues on the Form 990 was correct, he compared those revenues to the auction sales revenue from America Can!'s database. Cook also examined auction sales revenue from Kars 4 Kids' database and its 2010 audited financial statement. The 2010 statement indicated that "substantially all" of Kars 4 Kids' revenue are from donations. (CookReport, ECF No. 150-2 at 8). Once he was assured that the revenues on the Form 990s was reasonable, he then calculated the total of Kars 4 Kids' revenues as reported on Form 990 for the years 2008 through 2017. Relying on that sum, Cook concluded, "[America Can!'s] claim for [Kars 4 Kids'] profits on sales made using the infringing mark total $328,175,784." (Id. at 9).

Although this calculation is a relatively simple use of addition, it is Kars 4 Kids' burden to prove that the total revenues should be discounted by expenses based on the statute. 15 U.S.C. § 1117(a). In short, the jury may be unaware that the use of the revenues as reported on the Form 990 is an acceptable method to determine damages. Cook's presentation as to his method of finding the gross revenues by adding revenues from the Form 990s is of assistance to the jury.

Moreover, Kars 4 Kids has an expert who will testify as to the expenses that may be deducted from the total revenues to determine the profit. Mr. Cook intends to discredit Kars 4 Kids' expert by arguing certain costs should not be deducted. More specifically, Cook's rebuttal report offers several theories, but most notably, he asserts that the use of the term "profit" is of a different nature when applied to not-for-profit corporations as opposed to a corporation's profit. As such, Cook concludes that "any expenses that do not contribute to fundraising, or revenue generation, should not be deducted from revenue." (Cook Rebuttal Report, ECF No. 150-2 at 6).

In determining what revenues to discount, Cook examined a table, which was derived from the Form 990s:

Table 2 - 2016 K4K Form 990 - Statement of Functional Expenses
(A)
Total
Expenses
(B)
Program
services
(C)
Management
and general
(D)
Fundraising
Grants - Domestic
$18,262,163
$ 18,262,163
-
-
Grants - Foreign
200,458
200,458
-
-
Officers compensation
260,077
98,525
109,965
51,587
Other salaries & wages
,881,559
413,252
1,222,977
1,245,330
Payroll taxes
360,243
97,266
133,290
129,687
Legal
557,073
-
557,073
-
Accounting
81,312
-
81,312
-
Advertising and promotion
17,880,457
2,769,881
81,472
15,029,104
Office expenses
440,943
135,682
202,624
102,637
Information technology
59,396
-
59,396
-
Occupancy
22,213
2,579
17,943
1,691
Travel
15,724
-
15,724
-
Depreciation
,641
1,274
1,566
801
Insurance
45,136
-
45,136
-
Subscriptions
84,247
-
84,247
-
Merchant fees
78,986
-
78,986
-
Repairs and maintenance
45,990
16,097
19,776
10,117
Licenses and permits
40,365
-
40,365
-
Other expenses
19,958
19,958
-
-
Total
$41,339,941
$ 22,017,135
$2,751,852
$ 16,570,954

(Id. at 5). Cook provided a detailed analysis of this table and how the expenses it presents should be discounted:

Per the Form 990 instructions, Column (B)-Program Services "are mainly those activities that further the organization's exempt purposes," which K4K reported in Part III of Form 990 as: "educational, developmental, and recreational programs for Jewish youth and their families." Based on this description, these expenses did not contribute to K4K's generation of car donation revenue and should therefore not be deducted. Certainly, Domestic and Foreign Grants totaling $18.5 million are wholly unrelated to K4K's vehicle-donation fundraising function and should be excluded from deductions. Mr. Hall acknowledged this very fact in his apportionment calculation wherein he excluded grants from total expenses "to determine what portion of Kars 4 Kids operational expenditures represents advertising in a fundraising capacity." The same treatment should apply to the more than $600,000 in compensation/salary/payroll tax expenses K4K spends in running and managing its charitable programs, which is distinct from running and managing its vehicle-donation arm, the expenses of which are shown in Column (D) Fundraising. Likewise, the $2.8 million in advertising expense relating to its charitable programs (e.g., brochures for summer camps, ads for educational programs, etc.) are irrelevant to and do not support K4K's vehicle donation operations and should not be deducted from revenues. Indeed, all Program Services expenses in Column (B) are required by the IRS to be specifically segregated into that category because they support K4K's charitable programs and not its vehicle-donation fundraisingactivities. Therefore, none of the Column (B) expenses should be deducted from vehicle-donation fundraising revenues.

(Id. (footnotes omitted)).

Although Cook initially opined that profits should be calculated on all revenues generated, in his rebuttal report he discounted total fundraising costs because those "expenses directly relate to the generation of...

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