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James T. Scatuorchio Racing Stable, LLC v. Walmac Stud Management, LLC

United States District Court, E.D. Kentucky, Central Division, Lexington

April 25, 2014

JAMES T. SCATUORCHIO RACING STABLE, LLC, et al., Plaintiffs,
v.
WALMAC STUD MANAGEMENT, LLC, et al., Defendants.

MEMORANDUM OPINION AND ORDER

DANNY C. REEVES, District Judge.

Defendants Walmac Stud Management, LLC ("Walmac Stud"), Lincoln-Walmac Associated Farm Pty Ltd. ("Lincoln-Walmac"), John T.L. Jones III ("Jones"), and Walmac Farm, LLC's ("Walmac Farm") have moved to exclude the opinion testimony of Roy H. Kvalo. [Record No. 191] The defendants argue that Kvalo December 30, 2013 report was untimely and that his October 1, 2013 report does not comply Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure and is deficient under the Federal Rules of Evidence. [ Id. ] For the reasons discussed below, the defendants' the motion will be granted, in part, and denied, in part. The defendants have also filed several motions seeking to exclude expert testimony. [Record Nos. 197, 201, 206, 219] To the extent these motions pertain to Kvalo, these motions will be granted, in part, and denied, in part.

I.

As discussed in prior orders, this action arises from a series of contracts relating to the purchase and breeding of the thoroughbred stallion Ready's Image which is currently coowned by Plaintiffs Scatuorchio, LLC, Kevin Scatuorchio, Courtney Sullivan, and a number of the defendants. [ See Record Nos. 103, 127.] The plaintiffs' Complaint is predicated upon the defendants' alleged dishonest and fraudulent management of Ready's Image's stud career and breach of a number of written contracts involving Plaintiffs Walmac Stud, Walmac Farm, and other defendants.

In 2008, John T.L. Jones discussed with James Scatuorchio the purchasing an interest in Ready's Image and managing its career as a stud. In response, Scatuorchio, LLC, Kevin Scatuorchio, and Courtney Sullivan sold a two-thirds undivided interest in the thoroughbred to Walmac Stud for $2.4 million. The parties also entered into a Stallion Co-Ownership Agreement ("COA") which established terms and conditions of the parties' relationship as co-owners of Ready's Image. Under the COA, Walmac Stud was named as the "Stallion Manager" and was responsible for the day-to-day management of Ready's Image. However, Walmac Farm handled most of the Ready's Image's daily operations and management. Defendant Saybrook Advertising, LLC ("Saybrook"), was contracted by Walmac Farm to perform advertising and marketing for Ready's Image. The parties also entered into three other agreements giving other entities an ownership interest and management responsibilities for Ready's Image as it stood for stud in the Southern Hemisphere. Under these agreements, Lincoln-Walmac became a co-owner of Ready's Image in the Southern Hemisphere.

In 2010, Plaintiffs James Scatuorchio, Kevin Scatuorchio, and Bryan Sullivan (the "Mare Plaintiffs") entered into a Mare Agreement to help increase the number of mares bred to Ready's Image. Under this agreement, the Mare Plaintiffs would receive the proceeds of any contract for mares delivered by the Mare Plaintiffs to Walmac Farm for breeding with Ready's Image. [Record No. 72-1] According to the Mare Agreement, the Mare Plaintiffs delivered at least ten mares to the Walmacs. Based on allegations of mismanagement and improper allocation of funds, the plaintiffs have asserted several claims against the defendants. These claims are based on theories of breach of contract, breach of the covenants of good faith and fair dealing, breach of fiduciary duties, and fraud.

The Court's Scheduling Order set October 1, 2013 as the deadline to identify expert witnesses and produce their reports. [Record No. 124, p. 1] The disclosure of rebuttal expert witnesses deadline was scheduled for November 15, 2013 and the deadline for supplementing expert reports was December 3, 2013. [ Id., pp. 1-2] On October 1, 2013, the plaintiffs timely identified Kvalo, a certified public accountant, to provide testimony and address issues of lost profits and the mismanagement of the accounts related to Ready's Image. [Record No. 191-1, p. 1] Kvalo's October 1, 2013 report states that it is "a preliminary report discussing [the plaintiffs'] concerns regarding lost profits and mismanagement." [Record No. 191-1, p. 1] It also opines that a full and complete accounting is needed because not all necessary documents have been provided. [ Id. ] The October 1, 2013 report goes on to claim that the records kept by the defendants are erroneous and possibly reveal fraud. [ Id., p. 2] Importantly, Kvalo never indicates that he is a purported expert on damages nor does he provide any analysis concerning damages. [ See Id. ] The October 1, 2013 report also states that the plaintiffs reserve the right to supplement as more information may come to light through discovery. [ Id., p. 2]

The defendants obtained rebuttal testimony from their own experts and, on November 19, 2013, deposed Kvalo in New Jersey. [ See Record Nos. 193-1, 193-2.] During this deposition, Kvalo claimed that his report did not reflect all of the testimony he intended to express at trial as discovery was still ongoing. [Record No. 220-4, pp. 43-45] He also stated that his report was not final. [ Id. p. 45] On November 27, 2013, the defendants served the plaintiffs with discovery requests seeking the plaintiffs' damages calculations.

After all relevant deadlines had passed, the plaintiffs produced another report from Kvalo dated December 30, 2013. [Record No. 220, p. 10] The plaintiffs allege that this report was provided in response to the defendants' November 27, 2013 discovery requests. [ Id. ] The December 30, 2013 report adds to its subject matter, stating that Kvalo will also discuss "economic damages... resulting from lost profits relating to the mismanagement of [Ready's Image]." Kvalo concludes that the plaintiffs have suffered at least $2, 055, 046.00 in damages. [Record No. 191-2, p. 2] Notably, the October 1, 2013 report contains no calculation of damages and does not state that it was to be used as a basis for estimating damages.

The defendants seek to exclude the opinion testimony of Kvalo, arguing that: (i) the December 30, 2013 report is untimely; (ii) neither report meets the requirements of Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure; (iii) neither report is inadmissible under the Federal Rules of Evidence. Finally, they assert that Kvalo is not qualified to express the opinions outlined in the reports. [ See Record No. 191.] The plaintiffs claim that Kvalo's December 30, 2013 report is timely because: (i) it was submitted in response to discovery requests; (ii) the defendants had not produced all of the relevant discovery; (iii) they reserved the ability to amend the report; and (iv) any delay was substantially justified and harmless. [Record No. 220, pp. 10-15] The plaintiffs also argue that both reports are reliable, demonstrate Kvalo's methodology in reaching his conclusions, are based on sufficient facts and data. Further, they contend that Kvalo is sufficiently qualified. [ Id. pp. 18-28]

The defendants have also filed several motions seeking to exclude expert testimony concerning evidence related to Ready's Image in the Southern Hemisphere, advertising expenses, the commercial reasonableness of fees, and testimony that on ultimate issues or legal conclusions. [Record Nos. 197, 201, 206, 219] To the extent these arguments apply to Kvalo's testimony, they will be addressed below.

II.

For an expert's opinion to be admissible, it must satisfy three requirements. "First, the witness must be qualified by knowledge, skill, experience, training, or education. Second, the testimony must be relevant, meaning that it will assist the trier of fact to understand the evidence or to determine a fact in issue. Third, the testimony must be reliable." In re Scrap Metal Antitrust Litigation, 527 F.3d 517, 529-30 (6th Cir. 2006). When a party's expert witness is challenged, the Court assumes the role of a gatekeeper to determine whether the proposed testimony is reliable and relevant. Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 587 (1993). Under Rule 702 and Daubert, an expert may be qualified through "knowledge, skill, experience, training, or education." Fed.R.Evid. 702.

If qualified, an expert may testify if his knowledge will aid the trier of fact provided his opinions are based on sufficient data, reliable methods, and the facts of the case. Id. Rejecting expert testimony under Daubert is the exception rather than the rule. In re Scrap Metal, 527 F.3d at 530 (quoting Fed.R.Evid. 702 advisory committee notes); see also Andler v. Clear Channel Broadcasting, Inc., 670 F.3d 717, 729 (6th Cir. 2012) (reversing district court in excluding an economic expert as unreliable, noting that the testimony would be helpful to the jury and the weaknesses in the expert's testimony would be subject to vigorous cross examination); Dilts v. United Group Servs., LLC, 500 F.Appx. 400, 444 (reversing the district court's exclusion of an accident reconstruction expert's testimony as unreliable where the expert performed calculations and relied on methods generally employed in accident reconstruction); Palatka v. Savage Arms, Inc., 535 F.Appx. 448, 455 (6th Cir. 2013) (reversing a district court's exclusion of expert testimony as unhelpful, noting that factors he failed to consider in his opinion could be highlighted on cross-examination).

Rule 26(a)(2)(A) directs a party to "disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702, 703, or 705." Fed.R.Civ.P. 26(a)(2)(A). These disclosures must be made "at the times and in the sequence that the court orders." Fed.R.Civ.P. 26(a)(2)(D). Rule 26(a)(2)(B) requires a written report be disclosed that "contain[s] a complete statement of all opinions to be expressed and the basis and reason therefor." Fed.R.Civ.P. 26(a)(2)(B). Rule 26(e) requires that a party who has made a disclosure under Rule 26(a) supplement that expert report in a timely manner if the party learns that a material part of the disclosure is incomplete or incorrect and if the information has not been known to the other party during discovery. Fed.R.Civ.P. 26(e). Under Rule 37(c)(1), a ...


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