Mygallons LLC v. U.S. Bancorp , 521 F. App'x 297 ( 2013 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1287
MYGALLONS LLC,
Plaintiff - Appellee,
and
ZENACON LLC; STEVEN VERONA,
Plaintiffs,
v.
U.S. BANCORP; VOYAGER FLEET SYSTEMS, INC.,
Defendants - Appellants,
and
K.E. AUSTIN CORP.,
Defendant.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Wilmington. W. Earl Britt,
Senior District Judge. (7:09-cv-00057-BR)
Argued: March 20, 2013 Decided: May 31, 2013
Before NIEMEYER, MOTZ, and KEENAN, Circuit Judges.
Affirmed in part, vacated in part, and remanded by unpublished
opinion. Judge Niemeyer wrote the opinion, in which Judge Motz
and Judge Keenan joined.
ARGUED: Johnny Morgan Loper, WOMBLE CARLYLE SANDRIDGE & RICE,
PLLC, Raleigh, North Carolina, for Appellants. Gary Walker
Jackson, JACKSON & MCGEE, LLP, Charlotte, North Carolina, for
Appellee. ON BRIEF: Lewis A. Remele, Jr., Christopher R.
Morris, BASSFORD REMELE, PA, Minneapolis, Minnesota, for
Appellants. Marcus S. McGee, JACKSON & MCGEE, LLP, Charlotte,
North Carolina; Sherrie R. Savett, Douglas M. Risen, Russell D.
Paul, Jacob M. Polakoff, BERGER & MONTAGUE, PC, Philadelphia,
Pennsylvania, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
NIEMEYER, Circuit Judge:
MyGallons LLC, a Florida company that had not yet begun
doing business, sent out a press release on June 30, 2008,
announcing the launch of a nationwide prepaid gas program using
the Voyager payment network operated by Voyager Fleet Systems,
Inc. (“Voyager”), a subsidiary of U.S. Bancorp (collectively
“USB”). MyGallons and USB had been in discussions about using
the Voyager network to back the issuance of prepaid gas cards
but had not yet reached final agreement. In response to
MyGallons’ press release, USB released a series of “desk
statements” that, in effect, denied any connection or
affiliation with MyGallons. As a consequence, MyGallons’
announcement was distrusted, and it subsequently received an “F”
rating from the Better Business Bureau of Southeast Florida; was
labeled a “scam” in the media; and was unable to secure another
payment processor for its prepaid gas program.
MyGallons commenced this action for defamation, breach of
contract, and related claims, and after a trial, a jury awarded
MyGallons $4 million in damages on the defamation claim. USB
now appeals, contesting both the jury’s finding of defamation
and its award of damages.
We conclude that sufficient evidence was presented to the
jury to enable a reasonable jury to have found that USB defamed
MyGallons. But we also conclude that the damage award was
3
either excessive or unsupported because the expert testimony at
the heart of the award was admitted in violation of Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
Accordingly, we affirm the verdict on liability, vacate the
award of damages, and remand for a new trial on damages.
I
In early 2008, Steven Verona contacted Voyager to discuss
piloting his prepaid consumer gas program. Under the program,
members would pay an annual fee and be able to purchase a card
prepaying gas at a designated price and thus be able to buy gas
later at the prepaid price. Voyager, a wholly-owned subsidiary
of U.S. Bank National Association ND, in turn a wholly-owned
subsidiary of U.S. Bancorp, operated a payment processing
network for commercial and fleet gas purchases, using fleet
cards. Its program focused on commercial and government fleets,
and about 95% of the service stations nationwide accepted
payment through Voyager’s network. Voyager was not, however,
set up to provide the disclosures necessary for the issuance of
consumer gas cards.
After Verona explained his prepaid gas program to USB
executives, the executives explained that USB would not work
directly with Verona or any company of his until the program
reached a certain size. One of the executives directed Verona
4
to work with a “channel partner,” an authorized reseller of the
Voyager payment processing system, specifically recommending
USB’s channel partner K.E. Austin Corp., operating as “GoGas.”
In March 2008, Verona submitted a fleet card application to
GoGas through Zenacon LLC, a company that he had previously
created for ownership of his various inventions. Verona
informed GoGas that this was the pilot program for a larger
consumer venture. GoGas forwarded Zenacon’s application to USB,
which approved it. USB then issued Zenacon several dozen cards
using the Voyager payment network, which Verona distributed to
family and friends, who had been identified as employees in
Zenacon’s application. These individuals thereafter used the
fleet cards to purchase gas.
Soon thereafter, Verona decided to brand his consumer
prepaid gas program “MyGallons,” and on April 14, 2008, he
formed MyGallons LLC, a Florida limited liability company.
GoGas then requested that USB transfer Zenacon’s account to
MyGallons. The account, however, was never formally
transferred. But an internal USB communication from June 2008
stated that “MyGallons is an approved Voyager fleet card account
under the K.E. Austin GoGas channel partner program,” and “we
are working to expand the program to a direct relationship with
U.S. Bank and provide MyGallons with its own account to offer
prepaid relationship[s] to its members.” And by June 27, USB
5
was in the process of drafting a new contract for its direct
relationship with MyGallons. In the meantime, USB employees
worked with GoGas and Verona to design fleet cards with the
logos of both MyGallons and Voyager on them, even though up
until that time the only cards in active use were those that had
been issued pursuant to the agreement between GoGas and Zenacon.
On June 30, 2008, MyGallons publicly announced the launch
of its prepaid gas program with a press release titled
“MyGallons Provides Americans with a Solution to Fight Rising
Gas Prices: Fixed Price Gas Savings Program Allows Consumers to
Save Money by Buying Tomorrow’s Gas at Today’s Prices.” The
press release stated that “MyGallons offers its members
convenience and freedom as the gas redemption program uses the
Voyager fleet network, operated by U.S. Bank, which is accepted
at over 95% of gas stations nationwide.” Verona did not,
however, alert USB to the press release in advance, and USB
stated that it was unaware of the consumer, rather than
commercial, nature of MyGallons’ business plan until the press
release.
The MyGallons announcement was widely picked up by the
media, including Time Magazine, U.S. News and World Report, CBS
Early Show, ABC Evening News, and CNN International, and Verona
was interviewed on Good Morning America. Within days of the
launch, MyGallons had over 6,000 members who had paid the annual
6
fee, and even after MyGallons stopped accepting memberships
because it lacked a payment processor, approximately 25,000 to
30,000 additional people attempted to sign up.
The day after MyGallons’ announcement, on July 1, 2008,
USB’s counsel emailed Verona, stating in relevant part:
This communication is to inform you that there is
no agreement in place between MyGallons and U.S. Bank
or Voyager for such a program as described on the
MyGallons website. MyGallons had not communicated to
Voyager that any potential program between MyGallons
and Voyager was or is for consumer use. MyGallons
also has no approval from U.S. Bank or Voyager to use
Voyager’s marks, or to issue a press release naming
either U.S. Bank or Voyager. . . . U.S. Bank further
informs MyGallons that neither U.S. Bank nor Voyager
will enter into any agreement with MyGallons as
contemplated and described on MyGallons’ website.
We also understand you executed, as the president
and chairman of a company called Zenacon, LLC, a GoGas
Commercial Fleet Card application and agreement in
April, 2008 (the “Agreement”). We further understand
that Zenacon may be issuing cards to consumers, under
a similar model to the program described on the
MyGallons website. This constitutes an unauthorized
use of commercial fleet cards, and a breach of the
terms and conditions set forth in the Commercial Fleet
Card. We are terminating this Agreement immediately.
Later that day, USB held a telephone conference call with Verona
to inform him that USB could not participate in the venture
because Voyager did not deal in direct consumer transactions.
Concerned over being associated with a fuel hedging
program, USB decided to prepare a “desk statement” to respond to
media inquiries, which it subsequently shared with a number of
7
media outlets. Its initial statement, dated July 1, 2008,
provided:
U.S. Bank Voyager Fleet Systems does not have a
contract to do business with MyGallons.com. We did
not authorize the use of our name in association with
this venture and we are not affiliated with this
company.
After counsel for MyGallons requested that the “no affiliation”
phrase be removed, Voyager revised the statement to provide:
Neither U.S. Bank National Association ND, nor Voyager
Fleet Systems, Inc. have a contract to do business
with MyGallons.com, LLC, and there are no ongoing
negotiations to enter into any agreement with
MyGallons.
Voyager then revised the statement a final time, to provide:
Neither U.S. Bank National Association ND, nor Voyager
Fleet Systems, Inc. has a contract to do business with
MyGallons LLC, and there are no ongoing negotiations
to enter into any agreement with MyGallons.
We did have a commercial fleet fuel card contract with
Zenacon LLC through our partnership with third-party
marketer GOGAS Universal, however it was for the
exclusive purpose of providing commercial fleet
fueling and maintenance cards, not consumer cards.
Negative press about MyGallons ensued. The Better Business
Bureau of Southeast Florida gave MyGallons an “F” rating,
warning consumers to “beware.” Similar Internet postings and
articles followed, with MyGallons being labeled a “scam.”
MyGallons stopped signing up members and refunded all monies
that had been collected from members.
Despite contacting numerous companies during the days that
followed, including Visa, MasterCard, Discover, American
8
Express, NYC Network, Comdata, and Legacy, MyGallons was unable
to secure a replacement payment processing network. Verona
testified that a number of companies refused immediately,
without meeting or engaging in further communication. Verona
also asked Melody Wigdahl, an independent contractor who
specialized in payment solutions for corporate clients, to help
find an alternate payment processor. Wigdahl’s communication to
Verona at the time of her search emphasized the barriers that
had been created by the negative publicity about MyGallons.
When testifying in deposition, however, she focused on the
obstacles created by the type of platform sought by MyGallons
and its lack of funding. She also testified that Verona’s
reputation was a problem.
On July 7, 2008, GoGas authorized Verona to issue a
statement which provided:
GoGas had agreements in place with Zenacon LLC and
MyGallons LLC in order to provide support for the
MyGallons program through the use of the Voyager
payment processing network. We believe the MyGallons
program is an innovative business and it could offer
Americans relief at the pump. . . . We are sorry that
MyGallons and their launch have been harmed by the
release of incorrect information and confusing
statements resulting in negative press.
Verona, MyGallons, and Zenacon commenced this action in
August 2008 against U.S. Bancorp, Voyager, and GoGas for breach
of contract, promissory estoppel, and tortious interference with
contract and prospective contractual relations. The plaintiffs
9
alleged additional claims against U.S. Bancorp and Voyager for
defamation, disparagement/injurious falsehood, and false light
publicity. Voyager filed counterclaims against the plaintiffs,
including a claim for breach of contract against Verona and
Zenacon for failing to pay the charges made on the issued gas
cards.
The action was initially filed in the Eastern District of
Pennsylvania. When GoGas filed a motion to dismiss for lack of
personal jurisdiction, the court transferred the case to the
Eastern District of North Carolina. Thereafter, the plaintiffs
amended their complaint to add claims for unfair and deceptive
trade practices. They ultimately dismissed their claims against
GoGas.
Prior to trial, the district court dismissed Verona’s
individual claims for breach of contract and promissory estoppel
and all claims for tortious interference, false light publicity,
and unfair trade practices. It also denied USB’s motion filed
under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579(1993), to exclude the testimony of the plaintiff’s two expert
witnesses, Dr. Anca Micu and Paul Seitz.
At the conclusion of the plaintiffs’ case at trial, the
district court granted USB’s motion for judgment as a matter of
law on all of Zenacon’s claims, except for its breach of
contract claim, and all of Verona’s claims. The court submitted
10
the remaining claims to the jury, which included MyGallons’
claims against USB for (1) breach of contract, (2) promissory
estoppel, and (3) defamation; Zenacon’s claim for breach of
contract; and Voyager’s counterclaim against Verona and Zenacon
for breach of contract.
In its verdict, the jury found for USB on Zenacon and
MyGallons’ breach of contract claims and on MyGallons’
promissory estoppel claim. It found for MyGallons on its
defamation claim against U.S. Bancorp and Voyager, awarding
MyGallons $4 million in damages. And it found for Voyager on
its breach of contract counterclaim against Verona and Zenacon,
awarding it $1,096 in damages.
USB moved for judgment as a matter of law, or in the
alternative, for a new trial on damages or for a remittitur.
The court denied the motion. It upheld the defamation claim
because “[a] reasonable jury could have found one or more of the
defendants’ statements to be false.” The court declined to
alter the damages, finding that although it was unclear whether
the jury gave any special damages, if they did award special
damages, “[a] reasonable jury could have concluded that
defendants’ defamatory statements caused MyGallons’s inability
to secure an alternative card processing network which, in turn,
caused MyGallons to suffer pecuniary loss.” The court did,
however, state that “[i]f the jury had awarded $4,000,000
11
exclusively for general damages, the court might be inclined to
agree with defendants’ position that such award is excessive
given MyGallons’s relatively short existence and compared to
awards in similar defamation cases.” The court rejected the
defendants’ renewed argument that the plaintiff’s experts should
not have been allowed to testify. And finally, the court denied
the motion for remittitur because it was inappropriate given
that “the jury was not asked to separately identify what amount
it was awarding for reputational harm, lost profits, or other
monetary loss.”
USB filed this appeal on March 2, 2012, challenging (1) the
jury’s finding of defamation and (2) its award of $4 million in
damages.
II
USB contends that on the defamation finding, it is entitled
to judgment as a matter of law because its desk statements
issued in response to MyGallons’ June 30 press release were
substantially true and any resulting “sting” was caused by the
true statement that MyGallons did not have a contract with USB.
In response, MyGallons contends that having no contract was not
the entire message of the desk statements and that when the
statements are considered as a whole, they communicated the
false impression that there had not been any contact or
12
association between the companies. Thus, MyGallons contends
that there was sufficient evidence from which the jury could
have concluded that one or more of the statements in the desk
statements were false.
We review the district court’s denial of the motion for
judgment as a matter of law de novo. See Konkel v. Bob Evans
Farms, Inc., 165 F.3d 275, 279 (4th Cir. 1999). And in
conducting our review, we take the evidence in the light most
favorable to MyGallons and draw all reasonable inferences in its
favor. See id.The parties agree that the defamation claim is governed by
Minnesota law because the alleged defamation originated in
Minnesota. They also agree that under Minnesota law, the
elements of a defamation claim are: “(1) the defamatory
statement was communicated to someone other than the plaintiff;
(2) the statement is false; (3) the statement tends to harm the
plaintiff’s reputation and to lower [the plaintiff] in the
estimation of the community; and (4) the recipient of the false
statement reasonably understands it to refer to a specific
individual.” McKee v. Laurion, 825 N.W.2d 725, 729-30 (Minn.
2013) (alteration in original) (internal quotation marks and
citations omitted). A defamation claim cannot be based on a
true statement. Id. at 730. “True statements” include
statements that are “true in substance” and contain only “minor
13
inaccuracies of expression or detail.” Id. In articulating
this standard, the Minnesota courts explain that “substantial
truth” means that “the substance, the gist, the sting, of the
libelous charge [is] justified” and the statement “would have
the same effect on the mind of the reader or listener as that
which the pleaded truth would have produced.” Id. (alteration
in original) (emphasis added) (internal quotation marks
omitted). Finally, the determination of truth or falsity is
generally a question for the jury. Id.
In this case, USB’s desk statements contain four
significant statements: (1) USB “does not have a contract to do
business with MyGallons.com”; (2) USB “did not authorize the use
of its name in association with this venture”; (3) USB is “not
affiliated with this company”; (4) “there are no ongoing
negotiations to enter into any agreement with MyGallons.”
The jury determined, by implication, that the first
statement was true because it found against MyGallons on its
breach of contract claim. But, in concluding that USB had
defamed MyGallons, it found necessarily that one of the other
statements or the statements “as a whole” were false. See
Jadwin v. Minneapolis Star & Tribune Co., 390 N.W.2d 437, 443
(Minn. Ct. App. 1986).
Even though USB’s statement that it did not have a contract
with MyGallons was true, the remaining statements fairly
14
communicated a total disassociation of the companies. USB used
language to suggest that there had been nothing ongoing between
the parties, stating that it “did not authorize the use of its
name” in connection with MyGallons’ venture; that it was “not
affiliated” with MyGallons; and that “there were no ongoing
negotiations.” Yet, the evidence showed that USB executives had
heard from Verona about his concept for MyGallons, had met with
MyGallons, and had indeed directed MyGallons to establish a
pilot program though GoGas. While there may have been some
confusion about whether the proposed business relationship was
to be a commercial one or consumer oriented, it cannot be said
that the parties had not been negotiating or that they had no
relationship. USB employees had been working with GoGas and
Verona to design fleet cards that used the logos of both
MyGallons and Voyager, and there was evidence that USB was, as
of June 27, 2008, a few days before MyGallons issued its press
release, in the process of drafting a contract to implement a
direct relationship between it and MyGallons. The suggestions
that there had been no contact between the parties implied that
what MyGallons had reported publicly in its press release was a
complete fabrication, leading public commentators to refer to
MyGallons as a fraud or a sham. While MyGallons may have jumped
the gun with its announcement on June 30, 2008, USB’s response
was an overreaction that the jury could conclude gave a false
15
description of the relationship. We conclude that a jury could
reasonably have found that one or more of the statements
contained in USB’s desk statements were false, thus satisfying
that essential element of a defamation claim.
USB contends that even if one of the statements was false,
any “sting” was caused by the true statement that MyGallons did
not have a contract with USB for a nationwide consumer program.
USB, however, does not present evidence to support this
argument, and it does not explain why we should reject the
jury’s conclusion that the sting was caused by the falsity of
one or more of the other statements or the message communicated
by the other statements taken “as a whole.”
Accordingly, we conclude that the district court did not
err in refusing to set aside the verdict on the ground that
there was no substantial evidence to support the verdict.
III
USB also contends that the jury’s award of $4 million in
damages was excessive and unsupportable. It argues that a $4
million award “for general damages alone would be excessive,
[so] the verdict cannot be upheld unless it is deemed to be
comprised, at least in part, of special damages.” And with
respect to special damages, it argues that MyGallons failed to
prove the requisite causation. Alternatively, it argues that
16
the special damages award was unsupported, inasmuch as
“MyGallons should not have been allowed to present expert
testimony seeking $208 million in lost profits” when the company
had just started up and had no financing or profits.
In defense of the award, MyGallons contends that (1) that
“the jury’s lump sum award for all damages [must be] presumed to
be a mix of general and special damages in the proportion most
favorable to MyGallons”; (2) that there was sufficient evidence
of causation for special damages; (3) that even if the award was
entirely for general damages, it would not have been excessive;
and (4) that the expert testimony was properly admitted in the
discretion of the trial judge.
Under Minnesota law, damage awards in defamation cases can
be for (1) general damages for harm to reputation, wounded
feelings, and humiliation; or (2) special damages for “the loss
of something having economic or pecuniary value.” Longbehn v.
Schoenrock, 727 N.W.2d 153, 160 (Minn. Ct. App. 2007) (quoting
Restatement (Second) of Torts § 575 cmt. b (1977)); see also
Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 258-59 (Minn.
1980). Moreover, Minnesota courts have concluded that
“corporate plaintiffs stand on the same footing as individuals
in defamation actions.” Advanced Training Sys., Inc. v. Caswell
Equip. Co., 352 N.W.2d 1, 10 (Minn. 1984). Consequently,
corporations may not only receive awards for special damages in
17
defamation cases, but also for general damages for reputational
harm. See, e.g., Imperial Developers, Inc. v. Seaboard Sur.
Co., 518 N.W.2d 623, 627 (Minn. Ct. App. 1994).
In this case, the jury returned a general verdict awarding
MyGallons $4 million in damages for defamation without
specifying whether the $4 million was for general or special
damages, or both.
We begin our inquiry by assuming first, for purposes of
analysis, that the jury award was only for general damages based
on reputational injury. On that assumption, we agree with USB
that the award would have been excessive because a $4 million
award for reputational harm to a startup company that had only
publicly launched its business a few days before the defamation
would be “so exorbitant as to shock the sense of the court.”
Scott Fetzer Co. v. Williamson, 101 F.3d 549, 555 (8th Cir.
1996) (applying that standard to defamation damages under
Minnesota law). Even though MyGallons did receive extensive
media attention with its startup announcement on June 30, 2008,
and some 30,000 individuals enrolled or attempted to enroll in
the program shortly thereafter, it was a nascent company with no
capital, no financing, no customers who had yet used its planned
consumer program, and no profit. Any public reputation,
therefore, was established only in the few days extending from
June 30, 2008, into early July 2008. We find no support in the
18
record or in the case law that a company in those circumstances
would be entitled to millions of dollars in reputational damage.
We therefore conclude that if the award were entirely for
general damages, it would have been excessive.
Because the award fails if based completely on general
damages, we will assume, as we must, that the award included at
least some special damages, thus presenting the issues raised by
USB about any award of special damages. USB argues that any
special damages award could not stand because the plaintiffs
failed to prove causation and, in any event, were able to
justify such an award only with inadmissible expert testimony.
Under Minnesota law, special damages are recoverable only
for “actual and special pecuniary loss.” Stuempges, 297 N.W.2d
at 258. To recover such damages, a plaintiff must show (1) the
“loss of something having economic or pecuniary value” and (2)
sufficient causation -- that the defamatory statement was a
“substantial factor in bringing about the harm.” Longbehn, 727
N.W.2d at 160 (internal quotation marks omitted).
In support of its argument that the plaintiffs failed to
prove causation, USB points to the facts (1) that MyGallons
failed to call any of the “potential replacement [payment]
processors” as witnesses; (2) that Melody Wigdahl, an
independent contractor retained by MyGallons to help find an
alternative payment processor, identified other factors as the
19
impediments to MyGallons’ securing an alternative payment
network; and (3) that Verona could not testify as to the
influence of the defamation on the alternative payment
processors because the district court sustained objections to
that line of questioning as hearsay and without foundation.
Even so, we conclude that there was sufficient evidence
from which a jury could have found causation. The desk
statements issued by USB ignited a wave of bad press for
MyGallons, with MyGallons labeled as a “fraud” and a “scam.”
Verona testified that although there were alternative payment
networks and that he believed that securing another network
“wasn’t going to be that much of a challenge . . . with Wright
Express which is Voyager’s biggest competitor or with Comdata
and MasterCard or Visa or another payment network,” every
network refused to work with MyGallons and that he “couldn’t
even name all of the companies that didn’t have meetings with
[us] that just turned us down immediately.” He further
testified that alternative payment processors would ask about
“the series of events that led up to us calling them.” Verona
concluded that “it was apparent that we weren’t going to be able
to get anywhere as long as we had all of this press directed at
us and [were] being portrayed as a fraud.”
The evidence showed further that Wigdahl had sent an email
to MyGallons during the period following the defamation stating
20
that “unfortunately, the negative information online is being
brought up in every call back so far. . . . What would you
suggest as a response to the negative information available
online about MyGallons?” In addition, Wigdahl testified that,
as to Sutton Bank, a potential payment processor, “the issue
[was] the fact that U.S.B. had cancelled the program.”
From this evidence, we conclude that a reasonable jury
could draw reasonable inferences of causation. See, e.g.,
DeJarnette v. Corning, Inc., 133 F.3d 293, 297 (4th Cir. 1998)
(noting that juries can draw “reasonably probable” inferences to
establish causation); Lovelace v. Sherwin-Williams Co., 681 F.2d
230, 241 (4th Cir. 1982) (“[T]he question of sufficiency goes
simply to the reasonableness of drawing the necessary inference
of causation from the indirect evidence”); Stuempges, 297 N.W.2d
at 259 (finding that it was reasonable for a jury to find that
the plaintiff’s inability to find employment was caused by a
supervisor’s poor recommendation).
We agree, however, with USB that any award of special
damages was influenced by the expert testimony of a witness
improperly allowed to testify, in violation of Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). To
provide evidence of lost profits, MyGallons used the testimony
of two expert witnesses, Dr. Anca Micu, a professor of
marketing, and Paul Seitz, a certified public accountant. Dr.
21
Micu projected that over a three-year period beginning July 1,
2008, Mygallons could have achieved about 3.3 million members
“if they would have been in business as planned.” Based on that
projected membership, Seitz estimated that MyGallons suffered
$208 million in lost profits. USB argues that because Dr. Micu
lacked experience in forecasting sales and used an overly
optimistic and flawed method to predict membership, she should
not have been allowed to give her opinions.
Dr. Micu’s experience was centered on marketing
effectiveness. She had a Ph.D. in strategic communications, an
MBA in marketing, and a BS in finance and was a professor of
marketing at Sacred Heart University, where she taught courses
in advertising, marketing research, digital marketing, and
consumer behavior. She acknowledged, however, that her
expertise was not in sales forecasting and that “sales [are] not
used as an effectiveness measure of advertising efforts or
spending.” Nonetheless, she claimed that she was qualified to
give her opinions based on her expertise in “communication
effectiveness or persuasion with purchase intent.”
To project the future membership of MyGallons and therefore
its profits, Dr. Micu employed a “funnel approach.” Under this
approach she began with the market’s overall size and then
narrowed it to an estimate of actual memberships by considering
those who were aware of the MyGallons brand, the traffic to its
22
site, actual signups, and a projected growth rate and attrition.
She benchmarked MyGallons’ growth against industry giants such
as Apple, Costco, Netflix, and eHarmony, and she did not
reference any startup companies. In using the experience of
those large, successful companies as benchmarks, Dr. Micu did
not consider whether MyGallons had the resources, financing, or
experience necessary for such growth or, indeed, even as
necessary to carryout its own business plan. She also did not
consider the real circumstances that could cause MyGallons’
business plan to fail. For instance, Dr. Micu did not take into
account the viability of MyGallons’ plan if gas prices dropped,
a puzzling omission given the fact that gas prices actually fell
in the months after MyGallons announced its business plan. Of
course, with falling gas prices, the whole purpose of MyGallons’
gas payment plan would be defeated, as it was designed to hedge
against rising gas prices.
In sum, we conclude that far from resting on the requisite
“reliable foundation” that was required for such testimony, Dr.
Micu’s projections ignored business realities and relied on
sheer speculation. We therefore conclude that the district
court abused its discretion in admitting Dr. Micu’s testimony
under the standards required by both Federal Rule of Evidence
702 and Daubert.
23
Without Dr. Micu’s projected membership, Seitz had no basis
for his estimate that MyGallons suffered $208 million in
damages. And without this figure, we find no basis in the
record from which a jury could conclude that, as a startup
company without prior experience in consumer hedging and with
only days of publicity, MyGallons sustained a loss justifying a
substantial special damages award. See Boucher v. U.S. Suzuki
Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) (“Where lost future
earnings are at issue, an expert’s testimony should be excluded
as speculative if it is based on unrealistic assumptions
regarding the plaintiff’s future . . . prospects”); Tyger
Constr. Co. v. Pensacola Constr. Co., 29 F.3d 137, 142-43 (4th
Cir. 1994) (concluding that baseless expert testimony should not
have been admitted).
In sum, we conclude that a $4 million award would have been
excessive if entered for only general damages and that a $4
million award of special damages or some combination of general
and special damages would have been unsupported by admissible
evidence. Accordingly, we vacate the award of damages and
remand for a new trial on damages.
For the reasons given, the judgment of the district court
is
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED FOR FURTHER PROCEEDINGS.
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