Litigation & Disputes Bulletin: Q4 2022

Hundreds of cases are settled by our courts every day and it can be hard to keep up with the latest rulings. In this quarter’s newsletter, KSM’s Litigation & Disputes team has pulled together some interesting case summaries that obtained a meaningful result in the context of economic damages. Read on to see what’s happened recently.

If you require the perspective of an expert in commercial damages, we’d love to discuss how KSM can help. Please contact a member of our team or complete this form.

In This Issue:

• Magistrate Judge Recommends That the Plaintiff’s Motion to Exclude the Defendant’s Experts Be Denied and That the Defendant’s Motion to Exclude Plaintiff’s Experts Be Granted in Part and Denied in Part
• Ohio Appellate Court Affirms Trial Court’s Denial of Permanent Injunction and Dismisses a Claim of Tortious Interference
• The Supreme Court of New Jersey Accepts Trial Court’s Value of Companies and Denies a Marketability Discount in a Long-Running Contentious Shareholder Buyout Dispute

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Magistrate Judge Recommends That the Plaintiff’s Motion to Exclude the Defendant’s Experts Be Denied and That the Defendant’s Motion to Exclude Plaintiff’s Experts Be Granted in Part and Denied in Part

Therapeutics MD, Inc. v. Evofem Biosciences, Inc., 2022 U.S. Dist. LEXIS 58524 (March 30, 2022)

This case involved motions on the part of both parties in a trademark infringement case. The motions were heard before the magistrate judge for recommendation to the US District Court for the Southern District of Florida. The motions were to exclude expert testimony from witnesses of both the plaintiffs and defendants. The recommendation was “that Plaintiff’s motion to exclude Defendant’s experts be DENIED and that Defendant’s motion to exclude Plaintiff’s experts be GRANTED IN PART AND DENIED IN PART.

The parties cross-motions to exclude consumer survey experts. Two prominent surveys are used in trademark cases to aid in establishing the “likelihood of confusion” element: the Eveready Survey and the Squirt Survey. The plaintiff presented Dr. Yoram (Jerry) Wind, who conducted Squirt surveys and opined that there was a net confusion of 20% between the marks in question: IMVEXXY (the plaintiff) and PHEXXI (the defendant). The defendant’s expert, Dr. Neal, opined that there was no cause of material confusion between the marks. “Neither party disputes that the other side’s consumer survey expert is qualified.” Nevertheless, each side sought to exclude the survey testimony of the opposing expert, claiming the methodology used was inappropriate given the facts and circumstances of this case. The parties’ disputes over the proper surveys and methodologies to be used did not render the results of these surveys as inherently unreliable so that they should be inadmissible. Rather they went to the weight that a jury decided to afford the expert’s testimony.

The defendant’s motion to exclude the plaintiff’s other experts.

Dr. Delia DeLeon. The plaintiff presented Dr. DeLeon as a rebuttal to the testimony of Dr. Neal. Dr. DeLeon is a practicing OB-GYN, sees about 80 patients per week, and prescribes drugs to women in all stages of their lives, including the drugs that were the subject of this case. She proposed to describe, among other things, the process of decision-making between doctor and patient in writing a prescription. The defendant claimed Dr. DeLeon was not qualified to give her opinion and her testimony was moot since Dr. Neal amended his study to include prescribers.

The magistrate found that, under Daubert, her testimony was inadmissible because her testimony would not be helpful to the fact-finder.

Dr. Sandra Disner. Dr. Disner is a linguist with over 35 years of experience. The plaintiff presented her to testify that the two marks shared many orthographic and phonetic similarities. The defendant contended that she improperly focuses on the micro details and that her report was misleading. The magistrate found that the witness was qualified to testify and had provided a sound basis for her conclusions and her testimony can be helpful to the trier of fact. “As for Dr. Disner’s criticisms of the FDA and USPTO’s processes, I find that these portions of her report should be stricken. I am not convinced that Dr. Disner is qualified to opine on these processes; nor am I convinced that this testimony would be helpful to the factfinder.”

Dr. Jennifer Vanderhart. The plaintiff offered Dr. Vanderhart, an economist, to opine about damages. Her opinion was that the plaintiff was entitled to $1.43 million in corrective advertising damages. The defendant argued that the plaintiff was not entitled to corrective advertising damages and thus Dr. Vanderhart should not be allowed to testify. However, the magistrate determined that such damages were allowed and that the witness was qualified to opine as to those damages. “Accordingly, I find that Dr. Vanderhart should be permitted to testify regarding Plaintiff’s entitlement to recover these damages, provided Plaintiff proffers the necessary foundational testimony at trial to support Dr. Vanderhart’s opinion regarding the amount of damages owed.”

Plaintiff’s motion to exclude defendant’s expert—Jeff Anderson. Anderson was a managing director of an intellectual property asset consulting firm specializing in trademarks. He was also a CVA. He expected to rebut Dr. Vanderhart’s testimony and opine that corrective advertising was not required. The plaintiff argued Anderson was not qualified to testify because, “during his deposition Mr. Anderson was unable to name the types of harm courts have found to justify corrective advertising.” The magistrate found Anderson qualified to testify.

Anderson stated in his report that “there is no evidence that [Plaintiff] has suffered any economic harm or experienced a reduction in the value of their IMVEXXY trademark.” According to Anderson a plaintiff must establish some harm before being allowed corrective advertising damages. The magistrate found this to be a subject for cross-examination. Dr. Vanderhart’s testimony opened the door for Anderson to provide alternative damages calculations.

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Ohio Appellate Court Affirms Trial Court’s Denial of Permanent Injunction and Dismisses a Claim of Tortious Interference

Total Quality Logistics, LLC v. Tucker, Albin and Assocs., 2022-Ohio-1802; 2022 Ohio App. LEXIS 1666; 2022 WL 1741059 (May 31, 2022)

An Ohio appellate court affirmed the trial court’s denial of a permanent injunction to the plaintiff because the evidence did not show that it faced immediate and irreparable injury or harm. It was also held that the trial court properly dismissed the plaintiff’s claim for tortious interference because the plaintiff did not allege that the defendant induced a third party not to continue to do business with the plaintiff.

Total Quality Logistics LLC (TQL) (the plaintiff) appealed the judgment of the trial court granting summary judgment to the defendants (Tucker, Albin & Associates and Chris Reed) on its claims for breach of contract and punitive damages and its request for a permanent injunction. “TQL also appeals the judgment of the trial court dismissing, under Civ.R. 12(B)(6), its claim for tortious interference with contract and/or business relationships.”

TQL is a freight broker that arranges transportation of goods between its customers and third-party trucking companies. TQL arranged for Daansa Services LLC to transport goods to Prestige Kitchen and Bath, a customer of the Corsi Group. Daansa had signed a broker-carrier agreement with TQL.

A dispute arose between TQL and Daansa concerning the Corsi load, and TQL refused to pay Daansa. Daansa sold the account to Tucker, a Texas company, which buys receivables from trucking companies and tries to collect. Tucker’s Mr. Reed contacted Prestige and demanded payment on the account. Prestige contacted Corsi. TQL notified Reed that its contact was a violation of the broker carrier agreement. TQL filed suit against Tucker and Reed asserting claims for breach of contract, tortious interference with contract and/or business relationships, and punitive damages. The complaint sought compensatory damages for injury to business goodwill. The complaint also sought injunctive relief prohibiting defendants from contacting or suing any TQL customers demanding payment for invoices allegedly owed to trucking companies.

Tucker filed a motion to dismiss TQL’s tortious interference claim. The trial court granted that motion. “Tucker later filed a motion for summary judgment on the breach-of-contract and punitive-damages claims and separately filed a motion for summary judgment on the request for an injunction.” The trial court granted summary judgment to Tucker on these motions. It found that, while Tucker had violated the agreement, TQL failed to show that it had suffered injury to goodwill as a result. The trial court also declined to grant injunctive relief. TQL appealed.

The trial court erred as a matter of law when it granted the defendants’ motions for summary judgment. TQL argued that the trial court erred by finding that TQL failed to show damage caused by Tucker’s violation of the agreement and that its goodwill was injured because of Reed’s call to Prestige. The appellate court reviewed this issue de novo. “De novo review means that this court uses the same standard that the trial court should have used, and we examine the evidence to determine whether as a matter of law no genuine issues exist for trial.” (Morris v Dobbins Nursing Home) Tucker agreed it was bound by and violated the agreement. The issue was whether TQL presented sufficient evidence to show it was entitled to damages.

TQL claimed it suffered a loss of business goodwill, which is a form of loss of profits. Testimony of an expert was not required to show loss of goodwill, but testimony from one who had firsthand knowledge of the loss will suffice. In summary, TQL believed that Reed’s single call was responsible for its loss of goodwill. “[W]hile Unger defined loss of goodwill as the loss of reputation, which harms TQL’s relationships with customers and carriers, she identified only one customer (presumably Corsi) who had merely ‘threatened to stop doing business with TQL.’” The appellate court noted that it was incredibly difficult to determine how much any one allegation contributed to lost goodwill. “[T]here is no evidence that any amount could even be calculated, and it would be speculative to assign a dollar amount for TQL’s goodwill damages. A party cannot recover damages beyond the amount established with reasonable certainty.” No reasonable mind could find a loss of goodwill from Reed’s one phone call. TQL failed to show the existence of actual damage to goodwill resulting from Tucker’s breach of the agreement. “Thus, the trial court properly found that Tucker failed to present sufficient evidence that it suffered goodwill damages.”

Despite TQL’s failure to prove loss of goodwill, the Tucker breach of contract (i.e., of the agreement) did frustrate TQL’s way of doing business, and the trial court can still enter judgment in favor of TQL and award it nominal damages. Thus, the appellate court remanded the case for award of nominal damages and determination of prevailing party regarding an award of attorneys’ fees and expenses.

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The Supreme Court of New Jersey Accepts Trial Court’s Value of Companies and Denies a Marketability Discount in a Long-Running Contentious Shareholder Buyout Dispute

Sipko v. Koger, Inc., 2022 N.J. LEXIS 557 (June 23, 2022)

This shareholder oppression and buyout litigation has been going on since November 2007. In this current, and perhaps last, chapter, the Supreme Court of New Jersey once again stepped in and reversed the decisions of the appellate court, remanding the case back to the trial court for it to implement its remanded decision. The Supreme Court summarized its holdings as follows:

HOLDINGS: [1]-The appellate court erred by remanding the case to the trial court to determine whether a marketability discount should be applied to the value of plaintiff’s interests in the corporations because one defendant falsified evidence of plaintiff’s relinquishment of his interest in one of the corporations and comprehensive accounting of the corporations ordered by the trial court showed defendants’ deliberate and dubious actions undertaken for the sole purpose of rendering the corporations valueless that coincided with the litigation to prevent paying plaintiff for his interests in the corporations. Defendants made an overseas payment of $20 million cash one day after the trial court informed them that they owed plaintiff approximately the same amount of money; [2]-The appellate court erred by holding the trial court erred by accepting plaintiff’s expert’s testimony.

Judgment reversed and case remanded to the trial court for reinstatement of judgment.

The body of the opinion text begins with a syllabus. A syllabus is not part of the opinion but is prepared by the office of the clerk for the convenience of the reader. In itself, it is somewhat of a digest. However, it might not contain all of the points in the opinion. We do not “digest” or summarize the syllabus but note that it is there for additional information for the reader.

Opinion. The family litigation began 15 years ago, in 2007. The Supreme Court must determine whether the trial court’s finding as to the valuation of Robert Sipko’s interest in KDS and KPS, divisions or subsidiaries of Koger Inc., should be upheld or whether a DLOM should be applied, as the appellate court held in its remand to the trial court.

In 2013, the Supreme Court affirmed the appellate court’s ruling that KDS and KPS had value as independent entities. The Supreme Court remanded to the trial court to determine what remedy was appropriate to compensate Robert for his interests in KDS and KPS that were rendered valueless by the time the matter reached the Supreme Court.

This appeal centered around what had happened since the Supreme Court remanded this case in 2013. In 2016, the trial court held that a buyout is the appropriate remedy. The trial court accepted Robert’s expert’s valuations, finding that, in 2007, KDS was worth $1.5 million and KPS was worth $34.9 million. Robert’s interest was worth over $18 million. The appellate court remanded the case back to the trial court to determine whether a DLOM should be applied. The Supreme Court reversed the appellate court and reinstated the trial court’s judgment in Robert’s favor.

Background. George Sipko, a process programmer, formed Koger Inc. in 1994 and gifted 1.5% to each of his twin sons, Robert and Ras. He later founded KDS and KPS with both Robert and Ras owning 50% each. Due to a family dispute, Robert resigned in 2006. He signed documents memorializing the transfer of his 50% interest in both companies. The KDS document was dated Feb. 3, 2006, but the KPS document was dated Dec. 31, 2004. In November 2017, Robert filed suit against George, Ras, and Koger claiming that he was an oppressed shareholder. In January 2009, the trial court ruled that KDS and KPS had no independent value as distinct companies from Koger “and that Robert recognized ‘that his interests in KDS and KPS had no value, [and] voluntarily surrendered those interests.’” In May 2011, the appellate court reversed the trial court’s decision regarding Robert’s surrender of his stock in KDS and KPS, reasoning that his transfers lacked consideration and were, therefore, void.

The Supreme Court (2013) reversed the appellate court and ruled that George’s gift to Robert of Koger stock was not conditional and Robert was entitled to his 1.5% interest in Koger. Relevant to the current appeal, the Supreme Court ruled that KDS and KPS did have independent value based on the testimony of Robert’s expert, Hubert Klein, at the values noted above. George and Ras instructed their expert not to value the two companies. The Supreme Court found that both companies had value and that Robert had not relinquished his interest in either company. Left intact was the trial court’s determination that Robert was not an oppressed shareholder. The Supreme Court remanded for consideration of what remedy was appropriate, noting that the trial court had broad authority to what remedies were appropriate. “Our remand for a determination of a potential remedy for Robert’s interests in KDS and KPS forms the backdrop of this current appeal.”

The trial court, in July 2014, decided that an accounting of KDS and KPS was appropriate. The accounting determined what transpired with KDS and KPS prior to and after Robert’s 2007 complaint. Four out of seven KPS contracts were transferred to Koger either during the trial or after the appellate court’s 2011 opinion. One particularly valuable KDS contract was transferred to Koger in 2007. “[T]he trial court found that ‘the obvious, purposeful effect of draining these independent entities of value [was] for the specific purpose of shielding value from Robert.’ The trial court further noted that ‘the valuable contracts transferred or surrendered or assigned by KDS and KPS (i.e. by Ras) to Koger, Inc. was part and parcel of a strategy to render Robert’s interests in KDS and KPS zero.’” Since the companies had been drained by the time of the accounting in 2016, the judge (trial court) concluded the only remedy was to impose a buyout obligation upon George and Ras to pay him the value of his interests as of Nov. 13, 2007. The defendants declined the trial court’s invitation to offer an expert to value KDS and KPS as of that date.

Pursuant to Klein’s valuations, the trial court ruled that Robert’s interests had a value of $18.2 million before prejudgment interest. With interest and as of Aug. 19, 2016, the total judgment, jointly and severally, was $24.7 million.

Further accountings showed a number of financial transactions of a suspicious nature, especially $20 million cash transfers overseas to various accounts in July 2016. The trial court determined the transfer of $20 million was to keep the money away from Robert. George fled the country, and the money had not been returned to this country.

The appellate court affirmed the buyout remedy but sided with the defendants that the trial court improperly accepted Klein’s valuations, which it had rejected in 2008 and now accepted without explanation. The defendant’s expert, Martin Schmidt, testified that Klein failed to account for the impact that Koger—its infrastructure and goodwill—had on the values of KDS and KPS, including licensing agreements. The appellate court also noted that Schmidt had justified a DLOM, and the trial court had not applied one. “On remand, the Appellate Division instructed the trial court to ‘consider all sources of information that affect the fairness and equity of Klein’s suggested buyout price, including Schmidt’s criticisms.’” The Supreme Court granted petition for certification on the issue of the reconsideration of value of KDS and KPS.

Appeal to Supreme Court. Robert argued that the appellate court erred in remanding to the trial court for reconsideration of the value of KDS and KPS. He argued that a marketability discount (DLOM) should not be applied to benefit the defendants who acted inequitably throughout the litigation. According to the defendants, failure to allow a DLOM would provide Robert with a windfall. The defendants maintained that the trial court was not required to accept Klein’s valuations simply because it was unrebutted. The entities further argued that the alleged misfeasance of George and Ras had nothing to do with the entities.

Standard of review for valuation. Regarding the application of a DLOM, the Supreme Court had held that, depending on the facts, fairness and equity can compel the decision to apply such a discount. “The guiding principle in such cases is that a marketability discount cannot be used unfairly by the parties whose misconduct and bad faith caused the corporate split to benefit themselves to the detriment of the injured parties.” (Balsimides)

Determination. The defendants continued to argue that KDS and KPS have no independent value, despite the Supreme Court’s 2013 finding that the companies did have value. There was no better indication of how valuable the companies were than the defendants’ own transparent actions to gut the entities of any worth swiftly during this litigation. Ras backdated the KPS stock transfer from 2006 to 2004 in an attempt to deprive Robert of his interest in KPS attributable to certain contracts Robert negotiated in 2005. The court-ordered accounting illuminated the actions the defendants undertook to render the companies valueless.

The trial court noted that the courts, including this Supreme Court, cannot ignore the reality that the defendants knowingly depleted the value of the assets. Thus “equity cannot abide imposing a discount to the benefit of the Defendants.” The Supreme Court disagreed with the appellate court’s decision that the trial court did not support its decision to accept Klein’s valuations after rejecting it initially. The Supreme Court believed the record supported the decision of the trial court. The Supreme Court noted that the trial court judge had handled this case for over a decade and had the best feel for the case. The trial court judge heard testimony from both Klein and Schmidt, including cross-examination and his own questioning of both experts. Schmidt admitted during testimony that his application of a 35% DLOM was “instructions from counsel that in this—based on the facts of this case, it was appropriate.” The trial court had the discretion to accept or reject either side’s expert.

Schmidt testified that KDS and KPS had no independent value, and the trial court agreed, but, in 2013, the Supreme Court determined that they did have independent value. So there was no reason the Supreme Court would now determine that they did not have independent value. However, the trial court did give the defendants an opportunity to present testimony as to the value of KDS and KPS on the remand. The defendants strategically declined. They now argued to the Supreme Court that they did not present valuation because they did not believe that the trial court would order a buyout considering the lack of oppression. However, the defendants cannot ignore the Supreme Court’s 2013 decision and pretend they were unaware a buyout was a possibility.

“For the foregoing reasons, we reverse the judgment of the Appellate Division and remand the matter to the trial court to reinstate its August 19, 2016 judgment.”

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