Washington v. Kellwood Co.
105 F. Supp. 3d 293
S.D.N.Y.2015Background
- Plaintiffs Daryl Washington and Sunday Players, Inc. licensed their brand to Kellwood in a November 2003 exclusive license; Kellwood was to manufacture, market, and distribute compression sports apparel and pay royalties and marketing spend. Kellwood terminated the relationship in April 2005; plaintiffs seek >$50M.
- Central factual disputes: whether Kellwood reasonably marketed the brand, whether Kellwood (or MTV) produced forecasts projecting capture of 10–15% of the market, and whether a proposed Kellwood–MTV promotion would have driven major sales.
- Plaintiffs’ damages expert Scott Barnes offered two valuation methods: a Yardstick Analysis (comparing a Kellwood/Sunday Players/MTV venture to Under Armour’s early growth) and a Market Forecast Analysis (reconstructing projected market share, alleged to be 10–15%).
- Defendant’s rebuttal expert Gary Trugman attacked Barnes’s methods and conclusions as unreliable and violative of valuation standards. Both sides moved to exclude the other’s expert under Fed. R. Evid. 702 and Rule 403.
- The court excluded Barnes’s Market Forecast Analysis (as speculative and unsupported by actual projections), admitted Barnes’s Yardstick Analysis subject to limits (Barnes may not testify about reasonable marketing practices or industry marketing expertise), excluded Barnes’s calculations based on an assumed renewal term, and denied the motion to exclude Trugman.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Expert qualifications (Barnes) | Barnes is a qualified valuation expert; industry-specific marketing expertise is unnecessary for valuation testimony | Barnes lacks marketing/apparel expertise and cannot opine on whether Kellwood’s marketing was reasonable | Barnes qualified as a valuator; may not testify about reasonable marketing/promotional practices (excluded) |
| Reliability of Yardstick Analysis (Barnes) | Under Armour is a reasonable comparator; Barnes provided bases and adjustments (50% haircut) | Under Armour is not sufficiently comparable; methodology and choices are arbitrary | Yardstick Analysis admissible; comparator and adjustments go to weight, not admissibility |
| Reliability of Market Forecast Analysis (Barnes) | Testimony reflects parties’ expectations (as communicated to MTV) and supports lost-profit projections | Market Forecast rests on anecdote (Jackson deposition) and unsupported 10–15% market-share assumption; speculative | Market Forecast Analysis excluded under Rule 702 as speculative and unsupported by actual projections/evidence |
| Damages for renewal term | Plaintiffs seek lost profits/value for a renewal term assuming Kellwood would renew | Renewal was Kellwood’s unilateral option; no evidence supports assumption of renewal | Calculations for the renewal term excluded as speculative |
| Expert qualifications and scope (Trugman) | Trugman not qualified to opine on professional/ethical violations of valuation standards | Trugman is an experienced CPA and valuation expert qualified to critique Barnes and apply AICPA guidance | Trugman qualified; his rebuttal methodology admissible; criticisms go to weight |
| Rule 403/legal conclusions | Plaintiffs: Trugman’s invocation of standards/inferences will confuse jury or invade court’s legal province | Defendant: Trugman’s application of professional standards is relevant to reliability of Barnes’s methods | Trugman may testify about professional/valuation standards and their application; legal/conclusory matters for court/jury remain distinct |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993) (trial courts act as gatekeepers under Rule 702; focus on qualifications, reliability, relevance)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (Daubert gatekeeping applies to non-scientific expert testimony; reliability inquiry is flexible)
- Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., 571 F.3d 206 (2d Cir. 2009) (errors in underlying assumptions generally affect weight, not admissibility, unless so unrealistic as to suggest bad faith)
- Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000) (expert excluded where opinion rested on an insubstantial factual foundation)
- Kenford Co. v. Cnty. of Erie, 67 N.Y.2d 257 (N.Y. 1986) (New York imposes heightened certainty for lost profits of new businesses)
- In re Zyprexa Prods. Liab. Litig., 489 F. Supp. 2d 230 (S.D.N.Y. 2007) (expert testimony should not be excluded merely because conclusions are debatable; admissibility focuses on methodology)