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

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 19-cv-00718-PAB-NRN
AUTOTECH TECHNOLOGIES, LP d/b/a
EZAUTOMATION, an Illinois Limited Partnership,
Plaintiff,
vs.
PALMER DRIVES CONTROLS AND SYSTEMS, INC., a Colorado Corporation, and
LYNN WEBERG,
Defendants.
ORDER ON IN CAMERA REVIEW OF FINANCIAL STATEMENTS
N. REID NEUREITER
United States Magistrate Judge
This matter came before the Court on a discovery dispute on October 14, 2021.
See Dkt. #142 (Minutes of October 14, 2021 Discovery Hearing). In this commercial
dispute, Defendant Palmer Drives Controls and Systems (“Palmer Drives”) seeks
unredacted copies of Plaintiff Autotech Technologies’ (“Autotech”) audited (and
unaudited) financial statements with notes, including balance sheets. Autotech had
produced copies of its financial statements, but those financial statements were
produced in a redacted form and the notes of the auditor have also been redacted.
Palmer Drives argues that complete, unredacted versions of Autotech’s audited
financial statements are relevant and important to the assessment of Autotech’s claimed
damages in this case. The audited financial statements can be used to test the
reasonableness of certain inputs used in Autotech’s expert’s damages analysis, for
Case No. 1:19-cv-00718-PAB-NRN Document 143 filed 11/15/21 USDC Colorado
pg 1 of 5

2
example, by assessing and questioning assumptions relating to the incremental costs of
financing production of the at-issue products. So says Palmer Drives’ expert CPA
Matthew Wester:
It is common for experts rendering opinions concerning lost profits to review
the types of records Defendants are seeking in order to not only evaluate
the financial results of the business as a whole, but also to assess whether
the inputs selected for the damages calculation are reliable. The documents
produced by Plaintiff related to its expert’s damages calculation contain a
number of redactions and, in some cases, involve only portions of financial
records that more routinely are examined as a whole.
Dkt. #142-9 at 2 (Decl. of Matthew W. Wester).
Per Wester’s Declaration, the notes to the financial statements may describe
other aspects of Autotech’s business, such as details on financing availability, and
include details explaining “the nature of specific line items reported in the financial
statements.” Id. at 3. Critical information in the notes might include information relating
to Autotech’s amount of debt and whether Autotech had sufficient cash flow to produce
the products at issue in the litigation. In Mr. Wester’s view, the failure of Autotech to
provide the entirety of the audited financial statements to their own expert and to Palmer
Drives makes it hard to test the reliability of Autotech’s own net lost profits damages
calculation. Id.
It should be noted that this is not some minor quibble. Autotech’s own damages
expert, Mr. Kenneth Mathieu, estimates that Autotech would have earned “net
incremental profits up to $31.9 million” if it had obtained the contract that was allegedly
interfered with by Palmer Drives. Dkt. #142-6 (Expert Report of Kenneth Mathieu).
Palmer Drives should be able to test the assumptions underlying this damages figure
Case No. 1:19-cv-00718-PAB-NRN Document 143 filed 11/15/21 USDC Colorado
pg 2 of 5

3
and also consider other documentary evidence that might undermine the plausibility of
such a damages figure.
Autotech argues that all relevant information from the financial statements has
been produced. Autotech redacted some information because it has a subsidiary, and
the financial statements are consolidated financial statements that reflect irrelevant
financial information about Autotech’s subsidiary or related companies, which have
nothing to do with Autotech’s viability as a company or its ability to expand to produce
the volume of products at issue in this case.
At the conclusion of the Discovery Hearing, I ordered Autotech’s counsel to
submit by October 25, 2021 unredacted versions of the financial statements, so that I
could confirm whether the redactions are proper, or whether, instead, the financial
statements should be produced to Palmer Drives without redactions to allow for better
scrutiny by Palmer Drives’ expert. See Dkt. #142 (Minutes of Discovery Hearing).
Consistent with my Order, Autotech provided financial statements and balance sheets
for years 2015–2020.
I have now reviewed the unredacted consolidated financial statements and
compared them to the redacted versions that were previously produced to Palmer
Drives. I have also reviewed the financial statements from 2015 and 2016, as well as
balance sheets, which have not yet been produced to Palmer Drives. I conclude that
the entire unredacted financial statements, including the balance sheets, should
be produced.
First, I note that these documents should be produced as “High Confidential –
Attorneys Eyes Only.” Defense counsel should strictly abide by the protective order
Case No. 1:19-cv-00718-PAB-NRN Document 143 filed 11/15/21 USDC Colorado
pg 3 of 5

4
provisions governing such documents. Any intentional or reckless violation of the
protective order will be firmly dealt with by the Court.
Second, many of the redactions have to do with the consolidated nature of the
financial statements and attempting to keep from Palmer Drives information about a
foreign subsidiary. A review of the financial statements shows that the foreign subsidiary
plays a minor role in the overall financial statement (with total current assets in 2019
less than three percent that of Autotech, and net sales less than a tenth of Autotech’s
net sales). For completeness and clarity, it is appropriate that the entire financial
statement be provided, including information about the subsidiary.
Third, in terms of the Notes to the Financial Statements, many of the redactions
have to do with related-entity transactions and the cash surrender value of a life
insurance policy (which also insures a line of credit). Oddly, annual advertising costs
have been redacted as well. Completely redacted is Note 5, which describes lease
commitments and rent expenses of the company, presumably because it reflects certain
related-party transactions. All of Note 6—which addresses multiple related-party
transactions—is also redacted.
The Court is not a financial expert or a CPA. It is difficult for a judicial officer,
unschooled in financial matters, to determine with specificity whether a particular line-
item on a financial statement or a balance sheet will be relevant to a Autotech’s
damages calculation or the ability of Palmer Drives’ financial expert to evaluate
Autotech’s expert report. However, this is a big case. The damages sought exceed $30
million. In light of the information on the financial statements (both redacted and
unredacted), it is plausible that a some of the redacted information would be useful in
Case No. 1:19-cv-00718-PAB-NRN Document 143 filed 11/15/21 USDC Colorado
pg 4 of 5

5
challenging the large claimed damages in the case. For example, if Autotech were to
scale up production in order to meet the demand of a contract expected to generate
more than $30 million in net profits, then it is to be expected that additional lines of
credit would be required, along with perhaps more real estate. The notes of the financial
statements address some of these issues.
Therefore, because these financial statements will be produced under the
highest level of protection—“Confidential, Attorneys Eyes Only”—and because some of
the redactions appear to this impartial observer to be potentially relevant in the
assessment of Autotech’s extremely large claimed damages, it is HEREBY ORDERED
that unredacted version of Autotech’s financial statements, including the balance
sheets, from 2015 to the present be produced to Defendant Palmer Drives within 48
hours of the date of this Order.
Date: November 15, 2021. 	BY THE COURT:
________________________________
N. Reid Neureiter
United States Magistrate Judge
Case No. 1:19-cv-00718-PAB-NRN Document 143 filed 11/15/21 USDC Colorado
pg 5 of 5