Autotech Technologies, LP v. Palmer Drives Controls and Systems, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Case No. 19-cv-00718-PAB-NRN
AUTOTECH TECHNOLOGIES, LP d/b/a EZAutomation, an Illinois limited partnership,
Plaintiff,
v.
PALMER DRIVES CONTROLS AND SYSTEMS, INC., a Colorado Corporation, and
LYNN WEBERG,
Defendants.
____________________________________________________________________
ORDER
_____________________________________________________________________
This matter is before the Court on Defendants’ Motion in Limine to Disallow
Plaintiff’s Damages Expert and Barring Plaintiff from Presenting Evidence on Lost
Profits [Docket No. 177] and Plaintiff’s Motion to Bar Testimony of Matthew Wester
[Docket No. 180]. The Court has jurisdiction pursuant to 28 U.S.C. § 1332.
I. 	BACKGROUND
This case arises from conduct of defendants that allegedly deprived plaintiff of
sales to a prospective customer, Green CO2 Systems (“Green”). Docket No. 121 at 1.
Plaintiff EZAutomation (“EZAuto”) is a manufacturer of industrial automation control
products. Docket No. 178 at 1, ¶ 1. Vikram Kumar is the president of EZAuto and
Shalabh Kumar is the founder and chairman. Id. at 2, ¶ 7; Docket No. 190-14 at 1, ¶ 1.
Green is a manufacturer of carbon dioxide detection equipment and is operated by Dan
Schneider and David Schneider. Docket No. 178 at 1, ¶ 2. EZAuto alleges that Green
was interested in purchasing components for carbon dioxide detection equipment from
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EZAuto. Docket No. 121 at 12, ¶ 62. EZAuto claims that it brought defendant Palmer
Drives Controls and Systems, Inc. (“Palmer”) into the project as a systems integrator to
program the components. Id. at 5-7, ¶¶ 24-26, 31. EZAuto alleges that defendants
made false representations to Green, which caused Green to decide to use a
competitor’s products instead of plaintiff’s products. Id. at 17, ¶ 97. Plaintiff’s second
amended complaint asserts claims for tortious interference with prospective economic
advantage; breach of fiduciary duties; fraud; unjust enrichment; breach of contract; and
promissory estoppel. Id. at 11-25.
EZAuto retained Kenneth Mathieu, an expert in accounting and valuation, as a
damages expert to calculate plaintiff’s lost profits. See Docket No. 189 at 1; Docket No.
177-3 at 3. Defendants filed a motion to exclude Mr. Mathieu. Docket No. 177.
Defendants retained Matthew Wester as an expert to rebut Mr. Mathieu’s testimony.
See Docket No. 180-1 at 3. EZAuto moved to exclude Mr. Wester’s testimony. Docket
No. 180.
On November 14, 2022, EZAuto filed an opposed motion to amend Mr. Mathieu’s
expert report. Docket No. 202. Mr. Mathieu’s original report analyzed plaintiff’s lost
profits in reference to two different products: 1) the “HPP” product, which is comprised
of components that EZAuto historically designs and manufacturers in mass quantities
and 2) the “HPP+CP” product, which is comprised of components that EZAuto has not
historically manufactured, but “maintains the ability to do so.” Docket No. 91-7 at 10-11.
EZAuto sought to file an amended report by Mr. Mathieu to remove the damages
calculation for the HPP+CP product because plaintiff decided to focus only on the lost
profits from the HPP product at trial. Docket No. 202 at 2. The magistrate judge
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granted EZAuto’s motion, finding that the amended report only deletes references to the
larger and more speculative category of HPP+CP damages and does not change the
calculations for the HPP category. Docket No. 209 at 2-4. The magistrate judge
granted defendants leave to file a supplemental brief. Id. at 5. EZAuto filed Mr.
Mathieu’s amended report, containing only the HPP calculation of damages, which
reduces plaintiff’s claimed damages from $31.9 million to $14.8 million. See Docket No.
210; Docket No. 209.1
II. 	LEGAL STANDARD
Rule 702 of the Federal Rules of Evidence provides that:
A witness who is qualified as an expert by knowledge, skill, experience, training,
or education may testify in the form of an opinion or otherwise if: (a) the expert's
scientific, technical, or other specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in issue; (b) the testimony is
based on sufficient facts or data; (c) the testimony is the product of reliable
principles and methods; and (d) the expert has reliably applied the principles and
methods to the facts of the case.
Fed. R. Evid. 702. As the rule makes clear, while required, it is not sufficient that an
expert be qualified based upon knowledge, skill, experience, training, or education to
give opinions in a particular subject area. Rather, the Court must “perform[] a two-step
analysis.” 103 Investors I, L.P. v. Square D Co., 470 F.3d 985, 990 (10th Cir. 2006).
After determining whether the expert is qualified, the proffered opinions must be
assessed for reliability. See id.; Fed. R. Evid. 702 (requiring that the testimony be
“based on sufficient facts or data,” be the “product of reliable principles and methods,”
1 The amended report does not contain Mr. Mathieu’s exhibits. See generally Docket
No. 210. As a result, for clarity, the Court will cite to Docket No. 203-1 for the exhibits,
which is the proposed amended report containing exhibits attached to plaintiff’s motion
to amend. See Docket No. 203-1. The Court will cite to Docket No. 210 for Mr.
Mathieu’s report.
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and reflect a reliable application of “the principles and methods to the facts of the
case”).
In ruling on a Rule 702 motion, the district court has a “gatekeeper function to
‘ensure that any and all scientific testimony or evidence admitted is not only relevant,
but reliable.’” United States v. Gabaldon, 389 F.3d 1090, 1098 (10th Cir. 2004) (quoting
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)). To perform that
function, a court must “assess the reasoning and methodology underlying the expert’s
opinion, and determine whether it is both scientifically valid and applicable to a
particular set of facts.” Dodge v. Cotter Corp., 328 F.3d 1212, 1221 (10th Cir. 2003)
(citing Daubert, 509 U.S. at 592-93). When examining an expert’s method, however,
the inquiry should not be aimed at the “exhaustive search for cosmic understanding but
for the particularized resolution of legal disputes.” Daubert, 509 U.S. at 597. It is the
specific relationship between an expert’s method, the proffered conclusions, and the
particular factual circumstances of the dispute that renders testimony both reliable and
relevant. Basanti v. Metcalf, 35 F. Supp. 3d 1337, 1342 (D. Colo. 2014).
In addition to the witness having appropriate qualifications and methods, the
proponent of the witness’s opinions must demonstrate that the process by which the
witness derived his or her opinions is reliable. United States v. Crabbe, 556 F. Supp. 2d
1217, 1220 (D. Colo. 2008). Ultimately, the test requires that the expert “employ[] in the
courtroom the same level of intellectual rigor that characterizes the practice of an expert
in the relevant field.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999). While
the proponent of the challenged testimony has the burden of establishing admissibility,
the proffer is tested against the standard of reliability, not correctness, see Goebel v.
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Denver & Rio Grande W. R.R. Co., 346 F.3d 987, 991 (10th Cir. 2003); the proponent
need only prove that “the witness has sufficient expertise to choose and apply a
methodology, that the methodology applied was reliable, that sufficient facts and data
as required by the methodology were used and that the methodology was otherwise
reliably applied.” Crabbe, 556 F. Supp. 2d at 1221. “[T]he trial judge must have
considerable leeway in deciding in a particular case how to go about determining
whether particular expert testimony is reliable.” Kumho Tire, 526 U.S. at 152.
Assuming the standard for reliability is met, a court must also ensure that the
proffered testimony will assist the trier of fact. See id. at 156; United States v.
Rodriguez-Felix, 450 F.3d 1117, 1122-23 (10th Cir. 2006). “Relevant expert testimony
must logically advance[] a material aspect of the case and be sufficiently tied to the
facts of the case that it will aid the jury in resolving a factual dispute.” United States v.
Garcia, 635 F.3d 472, 476 (10th Cir. 2011) (quotations and citations omitted).
Rule 26 of the Federal Rules of Civil Procedure permits the “admission of rebuttal
expert testimony that is ‘intended solely to contradict or rebut evidence on the same
subject matter identified’ by an initial expert witness.” Spring Creek Expl. & Prod. Co.,
LLC v. Hess Bakken Inv. II, LLC, No. 14-cv-00134-PAB-KMT, 2016 WL 1597529, at *2
(D. Colo. Apr. 21, 2016) (quoting TC Sys. Inc., v. Town of Colonie, NY, 213 F. Supp. 2d
171, 179 (N.D.N.Y. 2002)). By contrast, “an affirmative expert serves to establish a
party’s case-in-chief.” Id. at *3. A rebuttal expert must submit a report that includes “a
showing of facts supporting the opposite conclusion of those at which the opposing
party’s experts arrived in their response reports.” Id. (citation omitted). “[R]ebuttal
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experts cannot put forth their own theories; they must restrict their testimony to
attacking the theories offered by the adversary’s experts.” Id. (citation omitted).
Finally, Federal Rule of Evidence 403 permits a court to “exclude relevant
evidence if its probative value is substantially outweighed by a danger of one or more of
the following: unfair prejudice, confusing the issues, misleading the jury, undue delay,
wasting time, or needlessly presenting cumulative evidence.” Fed. R. Evid. 403.
III. 	ANALYSIS
A. Kenneth Mathieu
Defendants seek to exclude EZAuto’s damages expert, Kenneth Mathieu, from
testifying pursuant to Rule 702 and argue that Mr. Mathieu’s lost profits calculation is
unreliable. Docket No. 177 at 1-3. Mr. Mathieu calculated EZAuto’s lost profits using a
methodology approved by the American Institute of Certified Public Accountants
(“AICPA”), which calculates the “net incremental revenues lost, offset by net incremental
costs avoided.” Docket No. 210 at 7. Mr. Mathieu offers an opinion that EZAuto would
have “earned net incremental profits up to $14.8 million if Green became a customer of
EZAuto beginning” in January 2018, with the profits varying based upon the number of
products sold and the length of the customer relationship. Id. at 4.
Defendants do not challenge Mr. Mathieu’s qualifications to render an expert
opinion on plaintiff’s lost profits. See generally Docket No. 177. Defendants also do not
challenge the AICPA methodology. See generally id. Rather, defendants argue that
Mr. Mathieu did not exercise proper expertise in determining what data to use in
applying the AICPA methodology, thus rendering his lost profits opinion unreliable. Id.
at 3, 6-7. Specifically, defendants argue that the lost profits opinion is unreliable
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because Mr. Mathieu: 1) uses an aspirational sales price and sales volume in his
calculation; 2) uses a growth rate and damages period not supported by the evidence;
3) fails to properly classify certain incremental costs; and 4) ignores plaintiff’s ability to
finance the project. Id. at 3-20. The Court will consider each argument concerning the
reliability of the opinion. 2
1. 	Sales Price and Sales Volume
Defendants argue that Mr. Mathieu’s lost profit calculation is unreliable due to his
assumptions regarding the sales price and sales volume for the HPP product, which
were derived from preliminary “whiteboard” negotiations between EZAuto and Green.
Id. at 7. Mr. Mathieu’s report states that, on December 8, 2017, EZAuto and Green had
a meeting at which the price and sales volume for the HPP product were discussed.
Docket No. 210 at 11. The parties wrote these numbers on a whiteboard. Id.; see also
Docket No. 190-1. David Schneider testified at his deposition that the following
individuals from EZAuto and Green were present at the December 8, 2017 meeting:
Vikram Kumar, Dan Schneider, and David Schneider. Docket No. 177-9 at 111:13-14.
A photograph of the whiteboard reflects a price for the HPP components ($720 + $65)
and an anticipated starting sales volume of 1,000 units. Docket No. 190-1; see also
Docket No. 210 at 11. Mr. Mathieu used a sales price of $785 for the HPP product and
a sales volume of 1,200 and 2,000 units per year. Docket No. 210 at 11. In
determining the sales volume for his calculation, Mr. Mathieu also considered evidence
of market potential in Green’s project scope document and Dan Schneider’s deposition
2 The Court’s references to Mr. Mathieu’s “opinion” refers to Mr. Mathieu’s ultimate
calculation of lost profits, namely, that EZAuto would have “earned net incremental
profits up to $14.8 million.” See Docket No. 210 at 4.
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testimony that annual sales could be as high as 5,000 units. Id.; see also Docket No.
190-10 at 12, 47:3-13.
Defendants argue that Mr. Mathieu’s sales price and volume assumptions were
“largely drawn out of thin air” because Mr. Mathieu took these numbers from preliminary
whiteboard negotiations between EZAuto and Green, that were never reduced to a
written agreement or commitment to purchase the HPP product at that price or volume.
Docket No. 177 at 7. David Schneider testified that the whiteboard negotiation was just
a “spit balling of the different products” and that the numbers were “exaggerated.”
Docket No. 177-9 at 114:10-17; 178:1-2. Defendants argue that Mr. Mathieu adopted
his client’s wishful sales price and volume projections, which were not the result of an
agreed upon contract. Docket No. 177 at 7-9. They also claim that Mr. Mathieu failed
to test the reasonableness of the hypothetical price and volume with a “before and after”
analysis.3 Id. at 10. Defendants state that courts have excluded experts where the
experts relied on optimistic sales projections from the clients and failed to investigate
market conditions or test the reasonableness of the projections. Id. at 8-9 (citing US
Salt, Inc. v. Broken Arrow, Inc., 2008 WL 2277602 (D. Minn. May 30, 2008); Ariens Co.
v. Woods Equip. Co., 2006 WL 2597979 (E.D. Wis. Sept. 9, 2006); Victory Records, Inc.
v. Virgin Records Am., Inc., 2011 WL 382743 (N.D. Ill. Feb. 3, 2011)).
EZAuto responds that Mr. Mathieu relied upon sufficient facts and data to
determine the price and anticipated sales volume. Docket No. 189 at 5-6. EZAuto
3 A before and after analysis determines whether projected sales are consistent with a
company’s historical performance. Id. at 10; see also Docket No. 180-1 at 17
(explaining that the “before-and-after method compares a plaintiff’s performance before
an event causing lost profits to a plaintiff’s performance after an event.”).
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states that Green “agreed to pay $785” per HPP product as evidenced by the
whiteboard negotiation between EZAuto and Green as well as the deposition testimony
of Dan Schneider.4 Id. at 6; see also Docket No. 210 at 12; Docket No. 190-1; Docket
No. 190-10 at 15, 57:5-8. Plaintiff states that the projected sales volume of 1,200 to
2,000 units per year is supported by the evidence because Green estimated annual
sales as high as 5,000 units per year. Docket No. 189 at 5; see also Docket No. 190-10
at 12, 47:5-9.
The Court finds that Mr. Mathieu relied on sufficient facts and data to determine
the sales price and sales volume of the HPP product. Defendants are correct that the
whiteboard discussion on December 8, 2017 was preliminary and did not represent a
contract to purchase the HPP product at the written price or volume. See Docket No.
177 at 7. However, Mr. Mathieu’s price and volume assumptions reflect projections that
were a product of negotiations, albeit preliminary ones, between EZAuto and the
prospective customer, Green, and therefore the numbers are relevant. See Docket No.
210 at 11; Docket No. 190-1.5 Mr. Mathieu additionally reduced the estimated volume
in an exercise of discretion, even though the testimony of Dan Schneider supported a
potential annual sales volume of 5,000 units per year. See Docket No. 210 at 11;
4 Vikram Kumar testified that Dan Schneider agreed to the whiteboard price and
quantity and these discussions represented an “agreement and contract to move
forward” between EZAuto and Green. Docket No. 190-12 at 6, 8, 21:4-8, 30:14-31:5.
5 This case is distinguishable from US Salt and Victory Records because the experts in
those cases relied almost exclusively on optimistic sales estimates provided by their
clients, not sales estimates that were a product of negotiations between the client and
the customer. See US Salt, 2008 WL 2277602, at *1; Victory Records, 2011 WL
382743, at *2.
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Docket No. 190-10 at 12, 47:5-9.6 Defendants fail to suggest a more reliable price or
volume estimate discussed between EZAuto and Green. See generally Docket No.
177. While the price and volume estimates will be contested at trial, defendants have
failed to demonstrate that Mr. Mathieu violated Rule 702 in utilizing these inputs for the
AICPA methodology. 7 Accordingly, the Court rejects defendants’ argument that Mr.
Mathieu’s opinion is unreliable based on the sales price of $785 and the sales volume of
1,200 to 2,000 units per year.
2. 	Growth Rate and Damages Period
Defendants argue that Mr. Mathieu’s lost profit calculation is unreliable because
he uses a growth rate and damages period not supported by the evidence. Docket No.
177 at 11. Mr. Mathieu’s damage estimates assume EZAuto would sell the HPP
product to Green for ten years. Docket No. 210 at 9. Mr. Mathieu’s calculation uses a 5
percent growth rate for the model of 1,200 units sold per year and a 10 percent growth
rate for the model of 2,000 units sold per year. Id. at 11. Mr. Mathieu’s growth rate
projections are based on the growth rates for the cannabis industry and chain restaurant
industry, id. at 11 n.52-53, which Mr. Mathieu assumed would be two of the largest
industries that would purchase Green’s final product. See Docket No. 189 at 14; Docket
No. 177 at 11. Defendants argue that Mr. Mathieu “cites no facts of record that would
suggest that a reasonable expert would apply an industry growth metric to projected
sales of a new product to a single interested customer such as Green CO2. To do so
6 The Court further notes that defendants’ rebuttal expert Mr. Wester acknowledges
there is an evidentiary basis for the sales volume in his deposition. Docket No. 190-11
at 38, 142:5-143:3.
7 The conflict between David Schneider’s testimony and Vikram Kumar’s testimony over
what transpired at the “whiteboard meeting” is appropriately resolved by the jury.
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ignores that Green CO2 would be highly vulnerable to competition that could wipe out
the entirety of Green CO2’s aspirational customer base in a heartbeat.” Docket No. 177
at 12. Furthermore, defendants argue that the undisputed testimony of David Schneider
demonstrates that Green would not have entered into a long-term deal to buy the
products given the rapid technological changes in the industry. Id. (citing Docket No.
177-9 at 181:15-183:2).
EZAuto argues that the growth rate and damages period is supported by
sufficient facts and data. Docket No. 189 at 5-6, 14. Mr. Mathieu provided damages
calculations for up to ten years based on evidence that EZAuto and Green discussed a
ten-year relationship. Docket No. 210 at 9; see also Docket No. 190-12 at 10, 40:3-16.
Mr. Mathieu tested the reasonableness of the ten-year assumption by looking at the
average length of the relationship between EZAuto and its top customers, which was
over twelve years. Docket No. 210 at 9. Furthermore, EZAuto argues that growth rates
can only be based upon the markets that drive demand, and Mr. Mathieu’s growth rates
were derived from the two largest industries that would use Green’s product. Docket
No. 189 at 14.
The Court finds that Mr. Mathieu relied on sufficient facts and data to determine
the growth rate and damages period for his model. Mr. Mathieu tested the
reasonableness of the ten-year assumption by comparing it to the length of EZAuto’s
historical relationships with top customers. See Docket No. 210 at 9. Defendants are
correct that an expert must consider potential competition in calculating lost profits. See
TK-7 Corp. v. Estate of Barbouti, 993 F.2d 722, 728 (10th Cir. 1993). However, Mr.
Mathieu has a factual basis for his assumption that there was a potentially large market
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for Green’s final product, and thereby EZAuto’s HPP product. See Docket No. 210 at
10 n.46 (citing Green’s marketing video describing the controller and the market
potential); Docket No. 190-3 at 252-53 (email from Dan Schneider stating that Green is
“negotiating with an extremely large gas company where these builds will be off the
chart.”); Docket No. 190-3 at 15 (Green’s product description discussing how its
controller “will be all inclusive for the various markets of [c]arbon [d]ioxide usage. The
beverage and cultivation industries are the two primary focal points for this application.
Other applications for this unit will be swimming pools, dry cleaning, and industrial
carbon dioxide usage locations.”). While David Schneider testified at his deposition
about competing products currently on the market, see Docket No. 177-9 at 180:5-14,
the discussions between Green and EZAuto at the December 8, 2017 meeting reflect
optimism about the market potential. See Docket No. 190-10 at 12-13, 46:4-47:13 (Dan
Schneider’s deposition testimony discussing the December 8 meeting and his belief that
it was a “big project” and “could be a highly utilized product”). Furthermore, defendants
do not challenge the cannabis and restaurant industries as likely target markets for
Green’s final product. See generally Docket No. 177. Defendants fail to explain why
Mr. Mathieu’s reliance on the growth rates of these two target industries is unreliable
when these industries would drive demand for Green’s final controller and thereby
plaintiff’s HPP product. See generally id. Accordingly, the Court finds a factual basis
for Mr. Mathieu’s assumptions that form permissible inputs for his methodology. See
Goebel, 346 F.3d at 991 (discussing how the test under Rule 702 is reliability, not
correctness).
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3. 	Incremental Costs
Defendants argue that Mr. Mathieu’s methodology is unreliable because he
ignored certain incremental costs, such as variable operating expenses, in his ten-year
projection. Docket No. 177 at 16-17. Defendants state that Mr. Mathieu assumed there
would be no increase in overhead or operating expenses, notwithstanding a dramatic
increase in sales revenue. Id. at 17. Citing In re Mahurkar Double Lumen Hemodialysis
Catheter Patent Litig., 831 F. Supp. 1354, 1386 (N.D. Ill. 1993), defendants argue that
the cost of sales, overhead, and administrative expenses are variable in the long run.
Id. EZAuto argues that Mr. Mathieu relied upon sufficient facts to calculate the
incremental costs, including EZAuto’s audited financial statements and discussions with
EZAuto’s management. Docket No. 189 at 6-7. EZAuto asserts that Mr. Mathieu
properly concluded that plaintiff would not incur other significant incremental costs aside
from labor and materials through Mr. Mathieu’s discussions about EZAuto’s business
structure and finances with Shalabh Kumar and Vikram Kumar. Id. at 15. Defendants
argue in response that an expert cannot rely solely on the assumptions of his client.
Docket No. 213 at 4.
Mr. Mathieu’s report states that EZAuto’s incremental costs to produce the HPP
products “are primarily labor and materials,” and he calculates the incremental costs at
$240.46. Docket No. 210 at 12. Mr. Mathieu calculated the incremental costs by
utilizing the revenue and costs from EZAuto’s 2017-2019 audited financial statements.
Id.; Docket No. 203-1 at 37-38. Mr. Mathieu’s report concluded that “[a]dditional
overhead expenditures would not be required to produce the units.” Docket No. 210 at
8. The report explains that plaintiff’s average manufacturing production was between
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20 to 25 percent and that sales to Green would only require an additional 9 to 10
percent production capacity. Id. at 13. Mr. Mathieu’s declaration additionally claims
that the information in Shalabh Kumar’s declaration is consistent with their discussions
of the business prior to the completion of Mr. Mathieu’s report. Docket No. 190-17 at 6,
¶ 21. Shalabh Kumar’s declaration states that he explained the business operations in
detail to Mr. Mathieu, including that the only incremental costs in manufacturing the
HPP product is labor and materials; the biggest cost is production line set-up time; the
largest component of the plant’s overhead (75 percent) is fixed rent payable to Shalabh
Kumar; the company would not need to acquire any additional equipment because the
plants were operating at 20 percent capacity; the second and third highest components
of overhead, utilities and insurance, were fixed; and there would be no increase in
research and development costs because the HPP product was already designed.
Docket No. 190-14 at 3-5, ¶ 19.
The Court finds that Mr. Mathieu’s incremental cost calculation is sufficiently
reliable under Rule 702. Mr. Mathieu relied on EZAuto’s audited financial statements to
calculate the cost of labor and materials, see Docket No. 203-1 at 37-38, and this initial
incremental cost calculation ($240.46) was substantiated in Mr. Mathieu’s supplemental
report, where he discussed a July 2021 study conducted by plaintiff that calculated the
actual incremental costs to produce the HPP product at $236.84. See Docket No. 177-
2 at 3. While defendants argue that Mr. Mathieu improperly assumed there would be no
increase in overhead or operating expenses in the long run, defendants do not
challenge the accuracy of the information in Shalabh Kumar’s declaration regarding
EZAuto’s overhead and operating expenses. See generally Docket Nos. 193, 213.
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Defendants do not contest Mr. Kumar’s assessment that EZAuto would experience no
increase in plant overhead, capital expenditures, or research and development costs for
the HPP product. See generally Docket Nos. 193, 213. Any potential increase in
overhead and operating expenses appears to be a minor component of the incremental
costs, which would not significantly alter Mr. Mathieu’s calculation.8 Accordingly, the
Court finds that Mr. Mathieu’s incremental cost calculation is sufficiently reliable and
finds no error in his classification of certain expenditures as fixed instead of variable in
the long run.
4. 	Financing for the Project
Defendants argue that Mr. Mathieu’s opinion is unreliable because he ignored
EZAuto’s ability to finance the project. Docket No. 177 at 13. Defendants claim that
plaintiff’s audited financial statements reveal an inability to fund the project: EZAuto had
utilized 97 percent of its line of credit of $5,954,000 and had only $200,000 remaining
on the line of credit. Id. at 13-14. Defendants also argue that EZAuto could not have
funded the increased production through existing cash flows. Id. at 14. Defendants
state that EZAuto attempted to conceal this information in its financial statements, yet
Mr. Mathieu did not amend his report after receiving the unredacted financial
statements. Id. at 4-6; see also Docket No. 213 at 5-6. Citing Bruno v. Bozzuto’s, Inc.,
311 F.R.D. 124 (M.D. Pa. 2015), defendants argue that courts have excluded financial
experts under similar circumstances when the plaintiff withheld important financial
8 Mr. Mathieu is also not required to adopt the specific methodology in Mahurkar. See
generally Mahurkar, 831 F. Supp. at 1386.
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information from the expert, but the expert failed to amend his report after discovering
the financial information. Docket No. 177 at 5.
Mr. Mathieu denies that EZAuto strategically withheld information regarding its
ability to finance the project and asserts that he received notes to the audited financial
statements, which discussed plaintiff’s line of credit and available capital, before issuing
his report. Docket No. 190-17 at 1-3. Mr. Mathieu asserts that he considered EZAuto’s
ability to finance the project when completing his analysis. Id. at 2. He states that the
cash flow generated from initial sales to Green would be “more than adequate to fund
production after the first few months” as evidenced in exhibits 1-4 of his report. Id.
Furthermore, he also considered additional sources of equity capital disclosed in the
audited financial statements, including Shalabh Kumar’s assets and the cash surrender
value of the life insurance policy. Id. at 3.9
The Court finds that Mr. Mathieu’s assumptions regarding EZAuto’s ability to
finance the project satisfy Rule 702’s reliability requirement. Although EZAuto’s
financial statements reveal that it had utilized 97 percent of its line of credit, Mr. Mathieu
concluded that EZAuto could finance production through the initial sales to Green in the
first few months. See Docket No. 190-17 at 2. As demonstrated in Exhibit 1 of his
report, if EZAuto sold 1,200 units of the HPP product to Green in 2018, EZAuto’s
revenue would be $942,000, costs would be $288,552, and net profits would total
$653,448. Docket No. 203-1 at 35. Shalabh Kumar states in his declaration that
EZAuto’s payment terms with Green would have been 30 days, whereas EZAuto had
9 Shalahb Kumar states that EZAuto had a $10 million dollar line of credit between 2017
to 2018 with his assets and life insurance policy as the collateral. Docket No. 190-14 at
2, 5, ¶¶ 12, 19p.
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90-day payment terms with most of its vendors. Docket No. 190-14 at 5, ¶ 19p. Mr.
Mathieu’s conclusion that the cash flow could finance the production in the first few
months is therefore an acceptable assumption under his model. See Goebel, 346 F.3d
at 991. The Court further finds that the Bruno case is distinguishable and will therefore
not exclude Mr. Mathieu’s opinion on that ground.10
Accordingly, the Court denies defendants’ motion to exclude Mr. Mathieu’s
opinion on lost profits.
B. Matthew Wester
EZAuto seeks to exclude the testimony of Matthew Wester, the defendants’
rebuttal expert on the issue of lost profits, on the grounds that he has impermissibly
become an advocate for the defendants and that his opinions are not expert opinions.
Docket. No. 180 at 2-4. EZAuto alternatively moves to exclude all ten of Mr. Wester’s
opinions. Id. at 7. 11
10 In Bruno, the plaintiff intentionally destroyed all of her business’s financial records,
which “forced Plaintiffs’ own experts to rely on secondhand sales projections.” Bruno,
311 F.R.D. at 125. Plaintiff’s electronic financial files were later restored, however,
revealing that actual sales fell far below the experts’ sales projections. Id. at 131-32.
The court excluded the expert testimony because the experts refused to consider the
real financial data and relied instead upon the inflated sales projections. Id. at 140-41.
In contrast, EZAuto did not engage in spoliation, but rather allegedly redacted certain
information from the financial records. See Docket No. 177 at 4-6. However, Mr.
Mathieu asserts that the line of credit information was never strategically withheld from
him because the audited financial statements, which Mr. Mathieu reviewed before
issuing his report, discussed EZAuto’s 97 percent utilization of its line of credit and
available capital of $200,000. Docket No. 190-17 at 2. In contrast to Bruno, Mr.
Mathieu analyzed the underlying financial information from the audited financial
statements to develop his projections. See id.
11 Defendants’ response contains many repeated arguments regarding the admissibility
of Mr. Mathieu’s testimony. See generally Docket No. 187. The Court will not re-
address these arguments.
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1. 	Miscellaneous Challenges
EZAuto argues that Mr. Wester has violated his duty of impartiality and has
become an advocate for the defendants. Docket No. 180 at 4. EZAuto cites several
statements from Mr. Wester’s report12 and argues that defendants are improperly using
Mr. Wester’s testimony to resolve disputed factual issues. Id. at 4-5. EZAuto
additionally argues that Mr. Wester has become an advocate for the defendants, as
demonstrated by his “false” deposition testimony and misleading statements regarding
his resume qualifications. Id. at 6-7; Docket No. 192 at 2-3. EZAuto argues that Mr.
Wester stated at his deposition that he has never been barred from testifying to any
damage opinions, yet he was barred by Judge Raymond Moore of this district from
testifying to over $11 million dollars in damages in Lambland, Inc. v. Heartland Biogas,
LLC, No. 18-cv-01060-RM-KLM, 2021 WL 2981935 (D. Colo. July 15, 2021). Docket
No. 180 at 6-7. EZAuto further states that Mr. Wester’s resume contains several false
statements, including that he was retained as the expert witness in two cases involving
lost profits. Id. at 6.
Defendants argue that Mr. Wester is not an advocate, but is rather testifying to
the unique difficulties that economic experts, like Mr. Mathieu, encounter when
12 Plaintiff cites the following statements from Mr. Wester’s report: 1) “[Plaintiff] did not
lose a profitable opportunity since the Project never went to market. To award lost
profits to [Plaintiff] would be to give profits to [Plaintiff] on a project in which no other
participants earned profits;” 2) “the Mathieu Report is calculating revenue on a product
which as discussed earlier, was not a finished device and did not meet all of Green’s
needs. . . . As a result, it appears the Mathieu Report is not calculating damages based
on the right product – i.e., the product needed for the Project;” and 3) plaintiff’s ability to
mitigate its damages was impacted by “(a) [Plaintiff’s] failure to demonstrate to Green
that [Plaintiff] had products that met Green’s needs; and (b) [Plaintiff’s] decision to
pursue litigation in this matter.” Id. at 4.
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estimating lost profits based on a new product. Docket No. 187 at 16-17. Defendants
further state that Mr. Wester’s deposition testimony and his resume are accurate. Id. at
19. Defendants maintain that, in the Heartland case, Mr. Wester never “reached an
opinion” on lost profits because his report calculated other types of damages, and the
report merely cited that he reviewed the lost profit calculations prepared by the parties.
Id.; see also Heartland, 2021 WL 2981935, at *4. They argue that Mr. Wester’s
deposition testimony was not false, even though Judge Moore barred him from testifying
to lost profits, because Mr. Wester never offered an opinion on lost profits. Docket No.
187 at 19-20. Furthermore, defendants state that Mr. Wester’s resume is accurate
because he consulted as a manager on those lost profit cases and never claimed he
testified as the expert witness. Id. at 20 (citing Docket No. 180-1 at 36.)
The Court rejects plaintiff’s arguments that Mr. Wester should be excluded based
on advocacy for the defense. The Court does not find any materially false or misleading
statements in Mr. Wester’s deposition testimony or resume. The isolated statements
that EZAuto cites do not demonstrate that Mr. Wester has become an advocate for the
defense. Accordingly, the Court rejects these arguments.
EZAuto additionally appears to argue that Mr. Wester should be excluded
because his testimony is not an expert opinion. Plaintiff states that “Mr. Wester’s
opinions are not based upon any specialized knowledge, skill or experience, training or
education.” Docket No. 180 at 2. EZAuto further states that Mr. Wester did not provide
his own opinion of plaintiff’s damages or critique the accuracy of Mr. Mathieu’s
calculations. Id. at 3. This section of the motion fails to comply with the Court’s
Practice Standards, which state that a Rule 702 motion “shall identify with specificity
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each opinion the moving party seeks to exclude. . . [and] identify the specific ground(s)
on which each opinion is challenged.” Practice Standards (Civil Cases), Chief
Judge Philip A. Brimmer, § III.G. Furthermore, a rebuttal expert is not required to
independently calculate a plaintiff’s lost profits; a rebuttal expert “must restrict their
testimony to attacking the theories offered by the adversary’s experts.” Spring Creek
Exploration, 2016 WL 1597529, at *3. Mr. Wester’s report specifically attacks the
assumptions and methods of Mr. Mathieu’s damages calculations. See generally
Docket No. 180-1. As a result, the Court denies this portion of the motion.
2. 	Challenges to Specific Opinions
The Court will evaluate the specific objections that EZAuto asserts for Mr.
Wester’s ten opinions.
a. 	Opinion 1
EZAuto argues that the following opinion is “not a proper subject of expert
testimony” and should be excluded:
• 	Opinion 1: Damages in the Mathieu Report are based on several disputed
items, including, but not limited to, causation, whether the Green Touch
Controller would actually go to market, and whether Green would have
become a customer of EZAuto.
Docket No. 180 at 7; Docket No. 180-1 at 4. Defendants argue that an expert’s
assumptions are a proper basis for rebuttal testimony. Docket No. 187 at 8. While true
as a general matter, a rebuttal expert’s report is limited to those matters on which the
opposing expert stated opinions. See Spring Creek Exploration, 2016 WL 1597529, at
*3. Mr. Mathieu’s report only provides an opinion on damages. See Docket No. 210 at
3 (“Specifically, I was asked to address the following question: Assuming Palmer is
found liable for wrongful conduct and Green would have become a customer of EZAuto,
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what is the amount of damages sustained by EZAuto?”). Opinion 1 is outside the scope
of proper rebuttal testimony because Mr. Mathieu does not express an opinion on
liability or whether Green would become a customer of plaintiff. See generally id.
Instead, Mr. Mathieu assumes these matters as his starting point. See id. at 3. As a
result, the Court will exclude opinion 1.
b. Opinions 2-5
EZAuto moves to exclude the following opinions as irrelevant or without a
supporting factual basis.
• 	Opinion 2: The Mathieu Report does not disclose any analysis or methods used
to test the reasonableness of the lost revenue projections. When applying
methods commonly used by damages experts to test the reasonableness of the
result, the analysis reveals that the amount and range of damages calculated in
the Mathieu Report are significant when compared to actual past results of
EZAuto, both to EZAuto’s sales overall and to sales made to top customers. In
addition, the Mathieu Report provides a large range of damages and little to no
guidance as to which damage measures are appropriate.
• 	Opinion 3: The Mathieu Report references one practice aid related to the
calculation of lost profits. However, the Mathieu Report fails to follow some of
the guidance in the cited practice aid and does not follow guidance in other
authoritative literature relevant to lost profits calculations.
• 	Opinion 4: The Mathieu Report does not disclose any financial summaries or
discussion of EZAuto’s business history or financial performance prior to the
alleged damages. In addition, the linear sales projected in the Mathieu Report do
not appear to take into consideration COVID or other business trends impacting
EZAuto given that EZAuto’s actual sales were flat in 2015 to 2018 and decreased
in 2019 and 2020.
• 	Opinion 5: The Mathieu Report does not disclose the specific method used to
develop the lost revenue projections. The Mathieu Report at least in part relied
on a post-litigation projection prepared by EZAuto and the Mathieu Report does
not disclose whether or not the projection was tested against historical results, or
the extent to which EZAuto management’s ability to accurately forecast future
results was considered. The Mathieu Report also does not disclose whether or
not and how the yardstick method was considered for use despite reliance on the
premise that the majority of EZAuto’s revenue is generated by products that are
similar to the HPP products. In terms of revenue calculations, the Mathieu
Report is calculating revenue on a product which was not a finished device and
did not meet all of Green’s needs. In addition, the number of units used in the
Mathieu Report are disputable based on deposition testimony of Green’s
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representatives and the size of Green’s actual customer base as of December
2017.
Docket No. 180 at 7-9; Docket No. 180-1 at 4-5. EZAuto argues that opinions 2, 4, and
5 should be barred because EZAuto’s past history with different customers and
products is not relevant to its damages in this discrete new business opportunity.
Docket No. 180 at 7, 9. EZAuto also argues that opinion 4 should be excluded because
Mr. Wester assumes without any factual basis that COVID would have impacted sales
to Green. Id. at 9. EZAuto asserts that opinion 3 should be excluded as irrelevant
because Mr. Wester never concluded that Mr. Mathieu failed to meet the AICPA
standards and it is unclear what other literature Mr. Wester is referencing in opinion 3.
Id. at 8.
Mr. Wester identifies numerous treatises and authorities in his report, which
discuss the importance of testing the reasonableness of projected lost profits by
comparing the calculation to the company’s historical past performance or other industry
data. Docket No. 180-1 at 11-15, 17-18. Opinions 2, 4, and 5 are thus relevant to Mr.
Wester’s criticisms of Mr. Mathieu’s methodology and lost profits calculation. In opinion
4, Mr. Wester does not assume that COVID would have impacted the sales of the HPP
product, but merely argues that a reasonable expert would have taken COVID into
account given that plaintiff’s audited financial statements showed that actual sales
decreased during the pandemic. Id. at 17. Opinion 3 is relevant because Mr. Wester
directly challenges Mr. Mathieu’s methodology for failing to follow some of the guidance
in an AICPA practice aid and other cited literature. See id. at 16. Accordingly, this
portion of the motion is denied. Mr. Wester is permitted to testify as to opinions 2, 3, 4,
and 5.
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c. 	Opinions 6-9
EZAuto seeks to exclude the following opinions related to information that Mr.
Mathieu allegedly failed to consider in his report:
• 	Opinion 6: The Mathieu Report did not consider information commonly
considered by damages experts in assessing lost profits, such as, for example,
more than one year of unimpaired (pre-loss) financial statements, complete
audited financial statements with all accompanying notes, a detailed general
ledger, customer records or reports with units sold, sales prices and discounts,
and inventory reports.
• 	Opinion 7: In terms of reliance on EZAuto’s management, Mathieu was asking for
relevant records to substantiate the inputs in the damages model and verbal
and/or email representations made by EZAuto. However, EZAuto provided a
limited number of business records to Mathieu and, as a result, the level of
testing and analysis to verify the accuracy of representations made by EZAuto
management was limited.
• 	Opinion 8: The Mathieu Report failed to consider common financial data to
assess incremental costs and, as a result, no financial analysis was performed
regarding any cost of goods sold overhead, selling expenses, engineering
expenses, or general and administrative expenses that may be incremental with
the alleged lost sales.
• 	Opinion 9: In terms of capacity, the Mathieu Report addresses manufacturing
capacity, in part by relying on management’s oral representations, but does not
address financial capacity including whether and how EZAuto could have
obtained the financing needed to produce the at issue units, and the related
financial costs to do so.
Docket No. 180 at 9-10; Docket No. 180-1 at 5. EZAuto’s basis for excluding opinions 6
and 8 is unclear. See generally Docket No. 180. Plaintiff argues that Mr. Mathieu
expressly stated the general ledgers would not provide relevant information to his
damages calculations because the general ledgers do not have product-specific cost
information. Id. at 3. EZAuto objects to opinion 7 on the ground that it is a statement of
fact, not an expert opinion. Id. at 10. EZAuto objects to opinion 9 on the ground that
Mr. Wester does not provide any factual basis for the assumption that plaintiff would
need financing for the project. Id.
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The Court will deny this portion of the motion. The information that Mr. Mathieu
allegedly failed to consider in his report is proper grounds for rebuttal expert testimony.
Mr. Wester references applicable standards in practice aids and explains how Mr.
Mathieu failed to consider the relevant industry standards for calculating lost profits.
See Docket No. 180-1 at 18-28. Mr. Wester provides an analysis of plaintiff’s line of
credit and borrowing base utilization, which is a sufficient factual basis for his critique
that EZAuto would need financing for the project. Id. at 45. Accordingly, this portion of
the motion is denied. Mr. Wester is permitted to testify as to opinions 6, 7, 8, and 9.
d. Opinion 10
Finally, EZAuto seeks to exclude opinion 10:
• 	Opinion 10: The Mathieu Report does not disclose what method(s) were
considered in determining an applicable discount rate and why the selected
method was used. The discount rates employed include subjective
components related to risk premiums and additional risk premiums. The
returns calculated in the Mathieu Report related to including the +CP product
type in damages (Scenarios 2 and 4) significantly outweigh the risk
adjustments incorporated in the discount rate.
Docket No. 180 at 10-11; Docket No. 180-1 at 5. EZAuto argues that Mr. Mathieu
described his theory of discount rates in his report and deposition. Docket No. 180 at
10-11. The Court finds that the disagreement over whether Mr. Mathieu used the
proper discount rate is proper grounds for rebuttal expert testimony. However, since
plaintiff has removed the HPP+CP damages calculation from Mr. Mathieu’s report, Mr.
Wester is precluded from offering this opinion with respect to the HPP+CP product.
Accordingly, the Court will exclude opinion 10 in part.
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IV. 	CONCLUSION
It is therefore
ORDERED that Defendants’ Motion in Limine to Disallow Plaintiff’s Damages
Expert and Barring Plaintiff from Presenting Evidence on Lost Profits [Docket No. 177]
is DENIED. It is further
ORDERED that Plaintiff’s Motion to Bar Testimony of Matthew Wester [Docket
No. 180] is GRANTED IN PART and DENIED IN PART.
DATED February 23, 2023.
BY THE COURT:
___________________________
PHILIP A. BRIMMER
Chief United States District Judge
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