SAN FRANCISCO PRINT MEDIA COMPANY v. THE HEARST CORPORATION еt al.
A152930
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION THREE
Filed 1/31/20
CERTIFIED FOR PARTIAL PUBLICATION*
(City & County of San Francisco Super. Ct. No. CGC13532369)
This case turns in part on the application of Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747 (Sargon), which sets out standards concerning the admissibility of expert opinion testimony. In the published portion of this decision, we conclude the trial court properly granted summary judgment as to plaintiff‘s cause of action for below-cost sales under the UPA (
Sargon motion and excluding the opinion of plaintiff‘s expert on costs. Among other things, plаintiff had disclaimed reliance on specific transactions to prove the Chronicle‘s alleged underpricing of its print advertising, leaving only the aggregate cost analysis prepared by that expert to establish the occurrence of alleged below-cost sales. As the trial court correctly determined, however, the record established that plaintiff‘s expert lacked the foundational knowledge to conduct the requisite cost analysis and that he based his analysis on another individual‘s non-UPA-related pricing analysis without understanding its foundations, such as some of the included cost components.
In the unpublished portion of this decision, we conclude summary judgment was properly granted as to plaintiff‘s cause of action for unlawful use or sale of loss leaders under the UPA (
The judgment is affirmed.
A. Plaintiff‘s Lawsuit
In June 2013, plaintiff filed its original complaint against the Chronicle‘s corporate owner and a subsidiary, Hearst Corporation and Hearst Communications, Inc., and three Chronicle employees. The operative third amended complaint alleged three causes of action under the UPA: below-cost sales (
The conduct underlying all these causes of action was, in essence, the Chronicle‘s alleged underpricing of its full-run run-of-press print advertising2 beginning in 2011,
when plaintiff bought the Examiner. During the course of the litigation, defendants had a protracted discovery dispute with plaintiff, trying to ascertain the specific advertisers at issue in the case. Then, in a December 2016 joint case management statement, plaintiff asserted its expert, Richard Eichmann, would testify about “costs, causation, and damages” by analyzing all of the Chronicle‘s print advertising transactions, not just particular transactions, to show the Chronicle sold below cost, and by conducting a statistical analysis to show the economic injury caused by the Chronicle‘s below-cost pricing and to calculate the Examiner‘s estimated lost profits. In light of Eichmann‘s methodology, plaintiff represented that defendants’ proposed depositions of particular advertisers were unnecessary and irrelevant. In the same joint case management statement, defendants responded, based on plaintiff‘s representations, that they did not intend to depose the hundreds of advertisers they initially thought they would. Defendants said that after completing expert discovery, they would file a Sargon motion challenging the admissibility of Eichmann‘s expert opinion testimony and a summary judgment motion. Before discussing these motions, we summarize Eichmann‘s expert evidence.
B. Plaintiff‘s Expert, Richard Eichmann
Plaintiff‘s expert, Eichmann, an economist and economic consultant, authored his initial report in November 2016. As relevant here, Eichmann first
what he calculated was the average price paid for print advertising in the Chronicle, he concluded that a majority of the Chronicle‘s advertising customers paid below cost for a majority of advertising between 2011 and 2015. Second, Eichmann conducted a regression analysis using information about print advertising sales from the two newspapers, devising an equation to statistically estimate thе relationship between the Examiner‘s advertising revenue with its own print advertising prices and the Chronicle‘s print advertising prices (also referred to as the own-price elasticity of demand and cross-price elasticity of demand, respectively). With these elasticity estimates derived from the regression analysis, Eichmann opined that the Examiner lost millions of dollars in profits from 2012 onward due to the Chronicle‘s below-cost pricing. Third, Eichmann purported to corroborate the results of his regression analysis with a “yardstick” analysis that estimated what the Examiner‘s print advertising revenue would have been had it realized nationwide industry growth rates for newspaper advertising revenue.
Defense expert Daniel Rubinfeld filed a report criticizing Eichmann‘s analyses on numerous grounds. Conceding the validity of Rubinfeld‘s criticism that he used incorrect data in his rеgression analysis, Eichmann submitted a supplemental report in April 2017 in which he updated his regression analysis and re-evaluated damages. Eichmann concluded his updated analysis supported his earlier conclusions regarding the effect of the Chronicle‘s below-cost pricing on the Examiner‘s revenue. Rubinfeld filed a supplemental report that again raised numerous criticisms of Eichmann‘s analyses.
C. Defendants’ Motion to Exclude Eichmann‘s Testimony and Motion for Summary Judgment or Summary Adjudication
Over defense opposition, the trial court granted defendants’ motion to exclude Eichmann‘s cost, regression, and yardstick analyses pursuant to Sargon, supra, 55 Cal.4th 747, then granted defendants’ motion for summary judgment. We summarize the latter ruling here.
With regard to the
With regard to the
As for the
Finally, regarding the UCL cause of action, the trial court determined that, although plaintiff implied it could proceed even if the three UPA claims failed, plaintiff failed to suggest or refer to evidence supporting that claim.
Plaintiff appealed from judgment entered in defendants’ favor.
DISCUSSION
Plaintiff challenges the trial court‘s grant of summary judgment. The rules governing our review of plaintiff‘s contentions are well established. A “motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (
A. The UPA Cause of Action for Below-Cost Sales (§ 17043 )
Turning to the first element, a fully allocated cost standard is employed for purposes of the UPA. (Turnbull, supra, 219 Cal.App.3d at pp. 819-820.) Under this standard, “cost” is “a fair allocation of all fixed or variable costs associated with production of the аrticle or product.” (Pan Asia Venture Capital Corp. v. Hearst Corp. (1999) 74 Cal.App.4th 424, 432 (Pan Asia).) “Thus, cost has been described as the initial expense of producing the article together with ‘its share of the load of carrying on the business through which it is sold.’ ” (Ibid.) “[T]here are many ways of fully allocating costs, [but] the possibilities are not without limitation. To be legally acceptable, the allocation of indirect or fixed overhead costs to a particular product or service must be reasonably related to the burden such product or service imposes on the overall cost of doing business.” (Turnbull, supra, 219 Cal.App.3d at p. 822.)
Plaintiff contends it raised a triable issue of fact in presenting evidence of cost and below-cost sales through its expert, Eichmann, whose cost analysis was wrongly excluded. We examine that evidentiary ruling now.
1. Additional Background
Before discussing Eichmann‘s cost analysis, we briefly discuss a 2010 report by John Sillers,4 then the Chronicle‘s Director of Finance. Sillers put
We now turn to plaintiff‘s expert, Eichmann, who claimed to calculate the Chronicle‘s “fully allocated cost” for print advertising. Eichmann‘s methodology for this calculation included five main components. First, he allocated 100 percent of the following seven categories of expenses as direct costs of print advertising: production
payroll, newsprint handlers payroll, production and newsprint and ink (N&I), N&I handlers payroll, supplements, editorial payroll, аnd editorial expense. Eichmann testified he did not know what some of these expenses were for and did no independent work to determine how they should be allocated, but instead relied solely on Sillers‘s analysis to allocate them5. Eichmann admitted he did not know Sillers‘s purpose for his analysis and was unaware of Sillers‘s testimony that he had never heard of the UPA. Eichmann allocated these categories as he did despite acknowledging that 75 percent of the Chronicle‘s newspaper pages are editorial, and 25 percent are advertising.
Second, Eichmann amortized a $200 million dollar contract renegotiation expense with the Chronicle‘s printer over 11.5 years and allocated 100 percent of the amounts as direct costs.
Third, Eichmann treated advertising payroll, advertising, general and administrative (G&A) payroll, G&A benefits, G&A other, postage, occupancy
Fourth, Eichmann deemed $1.2 billion that Hearst Corporation had spent to purchase the Chronicle and fund operations to be a “loan,” then calculated the annual costs of servicing that “loan,” and allocated these servicing costs as an indirect cost using the aforementioned two attribution percentages.
Finally, Eichmann used historic averages to estimate numerous categories of expenses in 2014 and 2015 for which he was not provided detailed income statements.
In the end, Eichmann opined the Chronicle‘s fully allocated cost of producing a page of print advertising from 2011 to 2015 ranged from $13,134 to $25,030 “depending on the year, calculation of indirect and direct expenses, and inclusion of costs associated with loan servicing.” Eichmann then calculated the average price paid for print advertising in the Chronicle, compared it to the foregoing cost estimate, and concluded that between 2011 and 2015, a majority of the Chronicle‘s advertising customers paid below cost for a majority of advertising.
As indicated, the trial court granted defendants’ motion to exclude Eichmann‘s cost analysis. The court explained that Eichmann, an economic consultant with no experience allocating costs for a subscription-based newspaper with paid advertising, lacked the “foundational knowledge to conduct a cost analysis” and relied on Sillers‘s analysis without understanding its foundations or knowing whether Sillers did a UPA cost analysis, which the evidence showed Sillers did not.
2. Legal Principles
“Trial judges have a substantial gatеkeeping responsibility when it comes to expert testimony.” (People ex rel. Dept. of Transportation v. Dry Canyon Enterprises, LLC (2012) 211 Cal.App.4th 486, 493.) Under
We review a ruling excluding expert testimony for abuse of discretion.7 (Sargon, supra, 55 Cal.4th at p. 773; Property California SCJLW One Corp. v. Leamy (2018) 25 Cal.App.5th 1155, 1162 (Property California).) An abuse of discretion is one that no reasonable person could agree with because it is so irrational or arbitrary. (Sargon, at p. 773.) The standard is a deferential one, and an appellate court may not substitute its discretion for that of the trial court, even if it disagrees. (Avant! Corp. v. Superior Court
(2000) 79 Cal.App.4th 876, 881-882.) The
3. Analysis
In this case, there appears no basis for concluding the trial court abused its discretion in excluding Eichmann‘s cost analysis. That analysis suffered from a clear foundational problem. Specifically, Eichmann‘s methodology included allocating 100 percent of seven categories of expenses аs direct costs of print advertising. While Eichmann had credentials as an economic consultant, he acknowledged he had no understanding of several of the cost categories and did no independent work to determine how those categories should be allocated. Instead, he relied solely on Sillers‘s 2010 analysis to allocate these costs, without knowing the purpose of Sillers‘s analysis or having any awareness that Sillers testified his analysis had nothing to do with the UPA. The evidence additionally showed that Sillers himself did not recall the methodology he used or the reasons for some of his decisions.
Ultimately, Eichmann‘s uninformed reliance on Sillers‘s analysis is not the mark of an opinion rooted in sound logic. (Sargon, supra, 55 Cal.4th at p. 772; Taylor v. Trimble (2017) 13 Cal.App.5th 934, 945, fn. 15 [“An expert opinion that does not contain ‘a reasoned explanation illuminating why the facts have convinced the expert’ need not be relied on“].) And because the record does not reflect the foundations of Sillers‘s analysis, it is unclear whether his analysis is “of a type that reasonably may be relied upon by an expert in forming an opinion” about fully allocated costs (
Plaintiffs’ insistence that Sillers performed a fully allocated cost analysis under the UPA is unsupported. As the trial court noted in its statement of decision, the evidence in the record militates against that conclusion. Specifically, a relevant part of Sillers‘s report is headed with the words “Breakeven Pricing.” (Bold omitted.) Sillers himself said he did an analysis of costs, but he also said he had never heard of the UPA and did not do a UPA cost analysis. Rather, he determined what the Chronicle needed to chargе on average to “break-even,” meaning print product would “cover production and newsprint expenses.” Defense expert Rubinfeld offered reasons why Sillers‘s analysis was not a UPA cost analysis, but instead an analysis to determine how much revenue the Chronicle would need to generate per page of print advertising to break even (i.e., generate enough print advertising revenue to arrive at zero profit before income tax), assuming all its other revenue sources stayed the same. (See, e.g., Sanchez, supra, 8 Cal.App.5th at p. 162 [plaintiff‘s expert
Plaintiff next contends that “allocating the full amount of several categories of costs to advertising, as Sillers did, accorded with the practice in the newspaper industry generally, and at the Chronicle specifically, of burdening the advertising revenue with direct and indirect expenses of producing the newspaper.” This argument fails to persuade. The plain language of Sargon dictates that a trial court exercise its gatekeeping function by considering the matter or information an expert actually relied on in reaching an opinion. (Sargon, supra, 55 Cal.4th at p. 772.) Here, there was no evidence that Eichmann knew about—much less relied on—the information plaintiff relies on making this argument to justify his reliance on Sillers‘s analysis or to explain his own allocation decisions.8
In arguing that Eichmann‘s model satisfied the minimal quantum of evidence necessary to put the issue of cost before a jury, plaintiff relies on the Pan Asia decision,
which involved a lawsuit between two San Francisco newspapers, the Examiner and the Independent. (Pan Asia, supra, 74 Cal.App.4th at p. 427.) There, the Independent alleged that the Examiner bid below cost in violation of
Pan Asia predates Sargon by over a decade. Because Pan Asia did not consider the issue of admissibility of expert testimony under the gatekeeping principles set out in Sargon, that case is not particularly useful in аnalyzing the situation here. As explained, the trial court properly excluded Eichmann‘s cost analysis as lacking in foundation under the principles set out in Sargon, and not because it believed that Eichmann‘s model (which plaintiff claims is a “variation on both of the cost models in Pan Asia“) was unworkable or inappropriate in this case.
Relying on Western Union Financial Services, Inc. v. First Data Corp. (1993) 20 Cal.App.4th 1530 (Western Union), plaintiff contends it was reasonable for Eichmann to rely on Sillers‘s analysis. We are not convinced. Western Union also predates Sargon and did not assess the admissibility of the subject expert evidence under Sargon‘s gatekeeping principles. More to the point, plaintiff merely relies on a reference in the decision‘s statement of facts that Western Union‘s expert determined First Data‘s costs by relying only on a document created by a nonmanagement First Data employee. (Western Union, at pp. 1533-1534.) Because the propriety of that reliance was not examined on appeal, the referencе is clearly dictum with no persuasive value.
Finally, plaintiff contends that even if Eichmann‘s reliance on Sillers‘s analysis was improper, exclusion of Eichmann‘s entire cost analysis was erroneous. In this regard, plaintiff argues the court should have looked at Eichmann‘s assessment of the Chronicle‘s indirect costs to support a cost figure and at evidence in the record concerning specific transactions, such as a specific transaction in 2013. Had the court done so, plaintiff claims, it would have found that the Chronicle sold below that indirect cost figure. Plaintiff also suggests that, had the court liberally construed the expert testimony, the court could have, on its own, ascertained a new aggregate cost model that would have shown below-cost sales on an aggregate basis.
Because plaintiff posits these claims for the first time on appeal, we decline to consider them. (Expansion Pointe Properties Limited Partnership v. Procopio, Cory, Hargreaves & Savitch, LLP (2007) 152 Cal.App.4th 42, 54-55 (Expansion Pointe Properties) [” ‘Generally, the rules relating to the scope of appellate review apply to appellate review of summary judgments. . . . Thus, possible theories that were not fully developed or factually presented to the trial court cannot create a ‘triable issue’ on appeal’ “].) Further, to the extent plaintiff is trying to rely on specific transactions to prove its claims, we observe the trial court correctly found—based on the previously mentioned
separate statement response (discussed more below) that it would “not be proving its below-cost claim on a transaction-by-transaction basis,” we reject plaintiff‘s assertion that its disclaimer applied only to proof of damages.
We are not persuaded by plaintiff‘s contention that the trial court was required to consider its evidence of specific transactions because defendants did not object. In its response to defendant‘s separate statement, plaintiff did not identify the particular below-cost sales that it now claims its
Point v. Holistic Health (2013) 213 Cal.App.4th 1016 indicating it would be error to exclude evidence from a summary judgment record based on discovery enforcement provisions in
For the reasons stated, we conclude the trial court did not abuse its discretion in excluding Eichmann‘s entire cost analysis.
Likewise, wе find no error with the grant of summary judgment on this cause of action. Eichmann‘s cost analysis was plaintiff‘s sole evidence of cost, without which it could not prove sales below cost. It was also plaintiff‘s only evidence concerning the occurrence of below-cost sales, given plaintiff‘s representations that it was not going to be proving its below-cost claim on a transaction-by-transaction basis. Once Eichmann‘s cost analysis was excluded, defendants carried their burden of showing no triable issue as to the occurrence of below-cost sales. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853 (Aguilar).)10
We end our analysis of this cause of action here. (
cannot be established“].) We express no opinion concerning the trial court‘s ruling as to the injurious purpose element of this cause of action. Briefly, however, we address plaintiff‘s claim the court “incorrectly granted summary judgment on [its] claim for damages” which contains the argument that the court improperly excluded Eichmann‘s regression and yardstick analyses. Suffice it to say the court did not rely on lack of evidence concerning causation and damages to support the grant of summary judgment as to the
B. The UPA Cause of Action for Loss Leader Sales (§ 17044 )
Defendants carried their burden on summary judgment by showing plaintiff failed to identify the loss leader sales this claim was based on. (Aguilar, supra, 25 Cal.4th at p. 853.) In its separate statement, defendants set out as undisputed facts that (i) plaintiff did not identify any below-cost sales this claim was based on, and (ii) plaintiff‘s exрerts offered no opinion about loss leaders. The burden thus shifted to plaintiff to identify the claimed loss leader sales. But in its response to defendants’ separate statement, plaintiff indicated that it “[p]artially disputed” its supposed failure to identify any particular sales, representing to defendants and the trial court: “Plaintiff will not be proving its loss leader claim on a transaction-by-transaction basis, but has identified several examples of specific loss leader sales in support of its arguments.” (Italics added, bold omitted.) Moreover, in disputing defendants’ factual assertion that plaintiff‘s experts offered no opinion about loss leaders, plaintiff asserted that Eichmann‘s opinions were relevant to damages for the loss leader claim, and it cited to examples of specific transactions to substantiate its loss leader claim. Put simply, plaintiff indicated that the only expert opinion relevant to the
Plaintiff‘s current citation to examples of specific transactions to support its loss leader claim is unavailing. As indicated, plaintiff‘s position in the trial court was that it would not be proving its loss leader claim on a transaction-by-transaction basis. Consequently, we will hold plaintiff to its word and deem the argument waived. (Expansion Pointe Properties, supra, 152 Cal.App.4th at pp. 54-55.) Although plaintiff argues all it meant by its separate statement response was it would not be identifying every instance of a loss leader, this is belied by the plain language of its response.
For the reasons stated, we affirm the grant of summary judgment on this cause of actiоn.
C. The UPA Cause of Action for Secret Unearned Discounts (§ 17045 )
The trial court granted summary judgment on this cause of action, reasoning plaintiff‘s aggregate proof of harm hinged on Eichmann‘s regression analysis, which was inadmissible and, in any event, not directed at secret unearned discounts.11 On appeal, plaintiff does not show error. Plaintiff does not address the trial court‘s finding that the regression analysis was “no[t] directed at secret unearned discounts.” Nor does plаintiff argue that the regression analysis, if admitted, would have supported the injury element of the
Plaintiff points to examples of specific transactions that allegedly involved secret unearned discounts and claims these harmed the Examiner and tended to destroy competition. As stated, however, plaintiff disclaimed any intent to prove causation and damages via evidence of specific transactions.
Also for the first time in its reply brief, plaintiff argues Eichmann‘s yardstick analysis supports the injury element of the
For the reasons stated, we affirm the grant of summary judgment on this cause of action.
D. The UCL Cause of Action
With regard to the last cause of action for violation of
reversed on any of the UPA claims, it should be reversed on the UCL claim as well, while simultaneously asserting that the UCL claim should not rise or fall with the UPA claims because the former is broader than the latter. In so asserting, however, plaintiff cites no evidence in the record supporting the UCL cause of action, and espouses no theory for how it might proceed in the absence of a valid UPA claim. We will neither speculate nor make аrguments for plaintiff ( Paterno, supra, 74 Cal.App.4th at p. 106) and will instead affirm the grant of summary judgment on this cause of action.
DISPOSITION
The judgment is affirmed. Defendants are entitled to recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
Fujisaki, J.
WE CONCUR:
Siggins, P. J.
Petrou, J.
A152930
San Francisco Print Media v. Hearst Corporation et al. (A152930)
Trial court: City & County of San Francisco
Trial Judges: Hon. Curtis E. A. Karnow
Attorneys: Horvitz & Levy, Jeremy B. Rosen, Joshua C. McDaniel; Jenner & Block, Rick Richmond, Jeffrey A. Atteberry for Plaintiff and Appellant.
Greenberg Traurig, Karin L. Bohmholdt, Alan Mansfield (pro hac vice), Stephen L. Saxl (pro hac vice) for Defendant and Respondent.
Notes
In rejecting plaintiff‘s attempt to prove the occurrence of below-costs sales by relying on proof of specific transactions, the trial court noted plaintiff‘s foregoing case management statement had a decisive impact on defendants’ discovery plans, as it resultеd in defendants not taking advertiser depositions.