Loeffel Steel Products, Inc. v. Delta Brands, Inc.

• Decision Date: 22 July 2005
• Docket Number: No. 01 C 9389.,01 C 9389.
• Parties: LOEFFEL STEEL PRODUCTS, INC., Plaintiff, v. DELTA BRANDS, INC., d/b/a DBI; and Samuel F. Savariego, individually, Defendants.
• Court: U.S. District Court — Northern District of Illinois

387 F.Supp.2d 794

LOEFFEL STEEL PRODUCTS, INC., Plaintiff, v. DELTA BRANDS, INC., d/b/a DBI; and Samuel F. Savariego, individually, Defendants.

No. 01 C 9389.

United States District Court, N.D. Illinois, Eastern Division.

July 22, 2005.

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COPYRIGHT MATERIAL OMITTED

Michael P. Connelly, Matthew Patrick Connelly, William Edward Snyder, Connelly, Roberts & McGivney, Chicago, IL, for Plaintiff.

H.N. Cunningham, III, James C. Baker, Roberts, Cunningham & Stripling, Dallas, TX, George N. Vurdelja, Jr., Griswold L. Ware, John M. Heaphy, Vurdelja & Heaphy, Chicago, IL, Randall Edmund Server, Tucker Bower Robin & Romanek, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

COLE, United States Magistrate Judge.

INTRODUCTION

On June 9, 2005, I denied the Defendants' Motion to Bar the testimony of Loeffel Steel Products' expert liability witness, Mr. Rudolph Toczyl. See Loeffel Steel Products v. Delta Brands, 372 F.Supp.2d 1104 (N.D.Ill.2005). The history of the parties' dispute is discussed in that opinion and need not be repeated. I address here the plaintiff's motion to bar the testimony of the defendants' damages expert, Mr. Robert Dohmeyer and Dohmeyer Valuation Corporation ("DVC").

Like Gaul, Mr. Dohmeyer's expert opinion and report may, be divided into three parts. The first is a "preliminary critique" of the report of Loeffel's damage expert, William Wiersema, contained in a letter dated February 27, 2004. The second and third components are contained in a separate, 41 (unnumbered) page document captioned, "Analysis of Economic Loss." ("the Analysis"). It, too, was dated February 27th.

The Analysis was a compendium of spreadsheets, reflecting 1) Mr. Dohmeyer's calculations of the $248,000 economic loss he concluded was suffered by Loeffel, and 2) charts and graphs reflecting financial data for the period 1999-2002 for Loeffel and for eight, large, publicly traded companies, which were supposed to depict the economic conditions in the steel industry at that time.

Loeffel's present motion challenges Mr. Dohmeyer's qualifications to offer expert opinion on economic loss and his methodology and definition of economic loss, which Loeffel argues did not comply with the four, non-definitive factors that Daubert said a court could use in determining testimonial reliability. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Loeffel also contends that Mr. Dohmeyer should not be allowed to testify because of his unquestioning reliance on the defendants' theory that the deficiencies in the Line could be cured by the addition of extra workers and additional shifts.¹ Lastly, the motion contends that Mr. Dohmeyer should not be allowed to testify about Mr. Wiersema's damage analysis, because his critique of February 27, 2004 did not comply with Rule 26(a)(2)(B).

I FACTUAL BACKGROUND

Prior to preparing his February 27th "preliminary critique" and his Analysis, Mr. Dohmeyer (and/or his two assistants at DVC) reviewed Loeffel's financial statements for the fiscal years ending November 30, 1999 through November 30, 2002, reviewed the deposition testimony of Loeffel's president, Maurice Loeffel and that of Mr. Wiersema, compiled financial data from annual 10k reports and Standard & Poor's Stock Reports on eight large publicly traded companies in what Mr. Dohmeyer categorized as the "(steel) metals industry," and interviewed the defendants' employees.² As we shall see, these interviews would play a pivotal role in Mr. Dohmeyer's analysis of Loeffel's "economic loss."

The Analysis concluded that Loeffel had damages prior to August of 2003 of $280,000, damages thereafter of $142,339, and lost profits of $50,000. The Analysis itself has no textual elaboration or explanation, and the reader is left to divine its meaning from the headings, captions, and the figures on its charts and spreadsheets. A meaningful understanding can only be gained by reference to Mr. Dohmeyer's deposition testimony. The Analysis's damage spreadsheets differentiated between pre- and post-August 2003 because, as Mr. Dohmeyer later explained, he assumed — based upon what he had been told by the defendants' employees — that the trouble with the magnets in the stacker had been alleviated or nearly so. (Dohmeyer Dep., at 39, 42-43). The Analysis then discounted the figures by $225,000, which represented the amount of the purchase price held back by Loeffel.

The Analysis's second and core assumption was provided by defendants' employees, who assured Mr. Dohmeyer that the various deficiencies in the Line could be offset by adding two additional workers to production runs and increasing the number of shifts. Using this methodology, and based on his conclusions about "industry" conditions between 1999 and 2002-as reflected by the financial data of eight publicly traded companies-Mr. Dohmeyer concluded that Loeffel's lost profits could not exceed $50,000.

The Analysis begins with an estimate of the hourly wages of the two additional workers, based upon the rates in Texas, where the defendants were located. Adjusting those rates — $13.00 for an operator and $7.50 for a helper — to what would be comparable in the Chicago area, Mr. Dohmeyer arrived at a total of $26.65 for both positions. Factoring in benefits left the combined rate at $39.98, which Mr. Dohmeyer arbitrarily increased to $50.00 per hour. Over the 702 days Loeffel ran the machine prior to August of 2003, based upon one eight-hour shift per day, Mr. Dohmeyer arrived at a maximum "economic loss" figure of $280,000, the amount that would compensate the two additional workers for the relevant period. (Analysis at 2; Dohmeyer Deposition at 26, 30, 33).

Mr. Dohmeyer then calculated future damages over a ten-year life of the Line, beginning in August of 2003. He began with the assumption, again based on what he was told by the defendants' employees, that Loeffel could process ten coils of steel on the Line every eight-hour shift. The "economic loss" figure was based on the defendants' assessment of the processing time. (Dohmeyer Deposition at 63-64). For this period, he was told by the defendants that an additional five minutes of labor per coil would alleviate any problems remaining with the Line during that period.³ Once again this was based on the twin assumptions that the problems with the stacker's magnets had been responsible for the vast majority of the deficiencies, and that these problems had been rectified by August, 2003. (Dohmeyer Dep., at 39, 42-43).

The five-minute estimate was a product of the defendants' assurances that the remaining problem — leveling the steel — could be corrected manually in 30 seconds to one minute per coil, which Mr. Dohmeyer rounded up to five minutes to be "conservative." (Dohmeyer Deposition at 62-63). This amounted to fifty minutes of labor per shift which he rounded up to an hour. This figure was then multiplied by 468 shifts per year over the ten-year period. Discounting the resulting sum to account for present value, cost of capital, and inflation, Mr. Dohmeyer arrived at $142,339 for future damages. (Analysis at unnumbered p. 3).

The lost profits calculations are a bit more difficult to discern, as the Analysis simply says under the captioned "Lost Business (Max)":

Lost Business Economic Profits-August 2003 > .10 Gauge $50,000

60" Inch Line Sold in February 2003

(Analysis at unnumbered page 5). The footnote after the $50,000 figure says "Expected Value of Economic Profits-Max-See Industry Analysis." However, referring to the 1½ page portion of the Analysis captioned "Industry Analysis" is a hopelessly uninformative exercise. All this part of the Analysis did was to summarize some unilluminating generalizations about the steel industry that Mr. Dohmeyer's DVC assistant had gotten off the internet.

At his deposition, Mr. Dohmeyer explained that the $50,000 figure was drawn from his analysis for processing "high gauge" steel or "toll processing." (Dohmeyer Dep., at 104, 106). The problems processing "high gauge" steel or "toll processing" could not be corrected by additional labor — that business was lost. (Dohmeyer Dep., at 70-71, 102-104). Although it is unclear from the Analysis, this was apparently a new business that Loeffel hoped to get into by virtue of the Line, but could not due to the Line's shortcomings. (Dohmeyer Dep. at 106). In reaching the $50,000 figure, Mr. Dohmeyer also considered his review of Loeffel's performance between 1999 and 2002, as well as the performance of the eight publicly traded companies selected as the sampling against which Loeffel's prospects in that period were to be measured. (Analysis at unnumbered pp. 6-11; Dohmeyer Dep. at 116-128).

II. THE ANALYTICAL FRAMEWORK FOR DETERMINING ADMISSIBILITY

Loeffel Steel Products v. Delta Brands, 372 F.Supp.2d 1104 (N.D.Ill.2005) discussed the analytical backdrop of motions to bar the testimony of an expert, and that discussion is incorporated by reference. To it, the following should be added. The Supreme Court in Daubert stressed the trial judge's obligation to act as a gatekeeper to ensure that expert testimony is reliable. The insistence on reliability helps to ensure the integrity of the judicial process. Mid-State Fertilizer Co. v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333, 1340 (7th Cir.1989). That goal is of such obvious and transcendent importance that judges can act sua sponte to prohibit testimony that does not pass muster under Daubert. O'Conner v. Commonwealth Edison Co., 13 F.3d 1090, 1094 (7th Cir.1994).

While Daubert reaffirmed the value of the adversary system generally and the capability of juries to understand scientific evidence and weigh the credibility of the competing experts, with their often absolutist and clashing conclusions, it also made clear that in those cases in which the proponent of an expert could not demonstrate the reliability of the methodology employed...