Student Marketing v. College Partnership ( 2007 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
August 9, 2007
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
STU DEN T M ARK ETING GRO UP,
IN C.,
Nos. 05-1427 and 06-1046
Plaintiff-Appellee,
v. (D . of Colo.)
COLLEGE PARTNERSHIP, IN C., (D.C. No. 04-cv-1258-LTB-BNB)
form erly know n as C OLLEG E
BO UN D STUDEN T ALLIAN CE,
IN C.,
Defendant-Appellant.
OR D ER AND JUDGM ENT *
Before M U RPH Y, HOL LOW AY, and TYM KOVICH, Circuit Judges.
I. Introduction
This diversity case arises from a contract dispute between Student
M arketing Group, Inc. (“SM G”) and College Partnership, Inc. (“CPI”) regarding a
contract to lease mailing lists of high school student names for promotional
purposes. SM G claimed CPI breached the contract by failing to make the final
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
three payments due under the agreement. CPI counterclaimed, alleging SM G
failed to provide the quantity and quality of names promised under the contract.
Additionally, CPI filed counterclaims for negligent misrepresentation and
fraudulent concealment.
The district court granted SM G summary judgment on all claims and also
awarded SM G costs and fees. CPI filed a motion in the district court for an
amended judgment on costs and fees, specifically requesting an evidentiary
hearing on the issue. W hile the court made some adjustments to the total aw ard
based on a clerical error, it substantially ratified the earlier award and denied
CPI’s request for an evidentiary hearing.
CPI now appeals (1) the order granting summary judgment, (2) the order
granting the amended judgment on costs and fees, as well as (3) the district
court’s threshold ruling that CPI’s proffered expert testimony was inadmissible
under Federal Rules of Evidence 702. Because we agree that CPI has failed to
raise a genuine issue of material fact with respect to any issue on summary
judgment, we AFFIRM the district court’s order on the merits. M oreover, we find
the district court did not clearly err in making its award of costs and fees absent
an evidentiary hearing and thus AFFIRM the amended judgment. Finally, the
district court did not abuse its discretion in excluding CPI’s expert testimony, so
we allow that ruling to stand.
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II. Background
Factual Background
SM G is a marketing company that maintains lists of names and addresses of
children, high school students, and college students. CPI is an education and
career preparation company that provides products and services to college-bound
high school students, using direct mail advertising to promote its business.
CPI previously leased student records from SM G from July 2002 to June
2003. Under the contract, SM G agreed to provide “up to a maximum of 600,000
High School Records per month” in exchange for a monthly fee of $25,000.
Rental Ag. § I. The original contract (“Rental Agreement”) expired without
incident and the parties entered a renewal contract (“Renewal Agreement”) for the
subsequent July 2003 to June 2004 term.
The terms of the Renewal Agreement largely mirrored those of the Rental
Agreement. For example, both contracts included identical language under the
heading “Delivery of High School Records; U pdates:”
A. Up to a maximum of 600,000 High School Records shall be
provided to Lessee [CPI] each month (on average) during the term of
this A greement, on an as needed basis, in an agreed upon electronic
storage medium and in an agreed upon format.
B. M onthly deliveries may contain either new or updated duplicate
High School Records. 1
1
The Renewal Agreement added a third clause to Section IV, providing:
“SM G represents that it currently owns approximately 5.7 million (5,700,000)
(continued...)
-3-
Rental Ag. § IV.; Renewal Ag. Sec IV. Both contracts, moreover, provided the
following provisions regarding late payment:
In consideration of the furnishing of the High School Records by SM G
hereunder, Lessee [CPI] shall pay SM G in accordance w ith the terms
specified herein. In the event any paym ent is more than ten (10) days
late, SM G may declare Lessee to be in default hereunder, and suspend
Lessee’s ability to utilize the High School Records until such time as all
amounts owed to SM G are paid in full. W ithout limiting any of SM G’s
remedies for non-payment or late payment of monthly installm ents, it
is agreed that a monthly payment not paid by its due date will be
subject to a late charge of ten percent (10% ). If collection efforts are
required, Lessee shall pay all costs of collection, including reasonable
attorneys’ fees.
Rental Ag. § V.B.; Renewal Ag. § V.B. (emphasis added). Neither contract
includes a similarly specific provision in the event of SM G’s failure to provide
the sufficient student records, though both agreements provide generally:
Either party shall be in default upon the occurrence of any one of the
following events: (1) breach or failure by such party to perform any
other term, condition or covenant of this Agreement and such breach or
failure shall continue uncured for a period of thirty days after receipt of
written notice thereof; (ii) if such party ceases the conduct of active
business; (iii) if any proceedings under the US Bankruptcy Code or
other insolvency law s shall be instituted by or against such party, or if
a receiver shall be appointed for such party; or (iv) if such party shall
make an assignment for the benefit of creditors, or admit in writing its
inability to pay its debts as they come due.
R ental A g. § X .; R enew al A g. § X.
1
(...continued)
H igh School R ecords and it anticipates compiling an additional 1 to 2 M ILLIO N
High School Records by June 2004.” Renewal Ag. § IV.C. The significance of
this provision w ill be discussed in greater detail below.
-4-
Furthermore, both contracts provided that the governing law in case of
conflict would depend on the party initiating suit. If CPI initiated legal action,
the laws of New York would govern; if SM G initiated legal action, Colorado law
would govern. Rental Ag. § XVII.; Renew al Ag. § XVII.
In spite of these similarities, significant differences also existed between
the two contracts. Notably, while the Renewal Agreement maintained the
comm itment to providing up to 600,000 records per month, it added a global
promise to provide “up to 9 M ILLION” records during the course of the year:
SM G hereby rents to Lessee up to 9 M ILLION (9,000,000) High School
Records (as defined hereinafter) during the term of this Agreement, for
Lessee’s sole and exclusive lawful use for its own direct marketing
activities in connection with offers of educational products and
services, subject to the restrictions on use and other terms and
conditions described herein and only as explicitly provided for in this
Agreement. . . .
Renewal Ag. § I.A. As unambiguous as it may seem, the quantity term “up to 9
M ILLIO N” is at the heart of this dispute. CPI maintains that it required SM G to
furnish at least nine million records during the one-year contract whereas SM G
says the plain language required up to a maximum of nine million records. It is
undisputed that SM G delivered 8,494,066 records to CPI over the course of the
Renewal Agreement. Aplt. App. at 674, 676.
Another modification to the Renewal Agreement was made under Section
V, “Payment Terms and Reporting.” In Section V.A., the Rental Agreement
provided: “Lessee shall pay SM G the sum of Twenty Five Thousand Dollars
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($25,000.00) each month for twelve months.” The Renewal Agreement, in turn,
provided: “Lessee shall pay SM G the sum of $0.0515 per High School Record,
payable in twelve monthly payments of $38,625 each.” 2 Renewal Ag. § V.A. The
product of $0.0515 and nine million records is equal to the net contract price of
$463,500 (12 months times $38,625 per month). This calculation is the basis of
CPI’s claim that SM G owed exactly (or at least) nine million records under the
contract.
Finally, the contracts differed in price. Despite the fact that SM G’s
monthly commitment to CPI remained the same, requiring it to provide “up to a
maximum of 600,000” records per month, CPI w as expected to pay SM G roughly
fifty percent more under the Renewal Agreement ($38,625/month) than it had
under the Rental Agreement ($25,000/month). Renewal A g. § V.A.; Rental A g. §
V .A .
The provisions cited above are the foundation for CPI’s counterclaims for
breach of contract. Additionally, CPI alleges that SM G misrepresented certain
key facts in its promotional materials. CPI says it detrimentally relied on these
misrepresentations and is entitled to damages as a result. The following excerpts
from SM G’s marketing brochure are relevant to CPI’s position:
2
In this section, both contracts further provide that “[p]ayment terms shall
continue to be net ninety (90) days,” which the record clarifies to mean that CPI
is to pay SM G within ninety days of each of SM G’s monthly invoices. Aplt. App.
at 27.
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Our Preschool, Elementary, Junior High, High School and College-
Bound High School Students lists are guaranteed to be 98% accurate.
***
No list can be 100% accurate due to constant changes in the population.
Each list is guaranteed separately as indicated in this catalog. SM G
will refund 15 cents for each piece of undeliverable mail in excess of
the guarantee as long as the list is mailed within 30 days of the date you
receive the files.
Aplt. A pp. at 709, 716.
It is undisputed that CPI failed to make the last three monthly payments
required under the Renewal Agreement, which gave rise to SM G’s suit for breach
of contract. Upon initiation of that suit, CPI filed counterclaims against SM G for
breach of contract, negligent misrepresentation, and concealment. SM G, in turn,
asked the district court for a temporary restraining order to stop CPI’s
unauthorized use of SM G’s lists until a determination on the merits could be
reached.
District Court’s Orders
On June 22, 2004, the district court granted SM G’s request for a temporary
restraining order and denied CPI’s expedited motion for reconsideration. A week
later, the district court granted SM G’s request for a preliminary injunction (the
terms of which were stipulated to by both sides) prohibiting CPI from using or
disclosing any of the records it had received from SM G pursuant to the Renewal
Agreement and from destroying any documents relevant to the pending litigation.
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The injunction was to remain in effect until the court could adjudicate the case on
the merits.
D uring discovery, C PI sought to introduce opinion evidence from two
experts to bolster its position that SM G had failed to meet its obligations under
the Renewal Agreement. Upon SM G’s motion, the district court reviewed the
proposed testimony and deemed it inadmissible as failing to meet the reliability
requirements of Rule 702 of the Federal Rules of Evidence. CPI maintains this
ruling is an abuse of discretion and asks us to reverse the district court on appeal.
On August 22, 2005, the district court granted summary judgment to SM G
on all claims and counterclaims, concluding that CPI had failed to present an
issue of material fact on any issue. The court ordered CPI to pay $127,462.50 in
damages (the three outstanding invoices plus associated late fees) plus attorneys’
fees and costs. SM G was given ten days to submit its claim for fees and costs.
CPI appealed (“first appeal”).
On January 3, 2006, the district court granted SM G’s claim for attorneys’
fees and costs in the amount of $284,716.30. CPI challenged the award under
Rule 59 of the Federal Rules of Civil Procedure, asking the district court to
amend the award or, alternatively, to grant a new trial on the issue in the form of
an evidentiary hearing. Before the district court ruled, CPI appealed the fees
-8-
judgment (“second appeal”). W e abated the second appeal pending the district
court’s resolution of the Rule 59 motion. 3
On April 3, 2006, the district court granted in part and denied in part CPI’s
Rule 59 motion. Agreeing it had double-awarded certain amounts previously
taxed as costs, the court issued an amended judgment in the amount of
$279,546.98. But the court denied CPI’s request for an evidentiary hearing to
resolve several purported factual disputes concerning fees and costs.
On April 12, 2006, we vacated the order abating CPI’s second appeal,
consolidated both appeals for procedural purposes only, 4 and ordered briefing to
proceed.
III. Discussion
The parties raise three issues on appeal: (1) w as SM G entitled to summary
judgment on all claims and counterclaims; (2) did the district court abuse its
3
On M arch 10, 2006, SM G moved to dismiss CPI’s first appeal for failure
to comply with applicable filing deadlines. CPI had submitted a motion to
consolidate both appeals before the deadline, though it should have filed an
opening brief in the first appeal at that time. CPI asks us to find the error
harmless, stating that its motion to consolidate was intended to stay the briefing
schedule until both appeals were ripe for review.
W e may permit the first appeal to proceed despite CPI’s timing error. Fed.
R. App. P. 31(c). W hile CPI should have filed a clarifying motion, no party was
prejudiced by its mistake nor was the court’s consideration of the appeal
impaired. Furthermore, there is no showing that CPI acted in bad faith. W e thus
deny SM G’s motion to dismiss the first appeal.
4
W e also grant CPI’s motion to consolidate both appeals for our
disposition of the merits.
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discretion by excluding the testimony of CPI’s expert witnesses under Rule 702 of
the Federal Rules of Evidence; and (3) did the district court abuse its discretion
by aw arding SM G all the costs and fees it requested without an evidentiary
hearing?
A. Sum m ary Judgm ent
CPI contends that the district court improperly granted summary judgment
to SM G on its breach of contract claim as well as counterclaims for breach of
contract, negligent misrepresentation, and concealment. The core of CPI’s
position is that SM G breached its own comm itment to deliver the quantity and
quality of names promised under the contract and related promotional materials
and, therefore, CPI should be excused from performing its obligation to make the
final payments on the contract.
W e review the grant of summary judgment de novo. Palladium M usic, Inc.
v. EatSleepMusic, Inc., 398 F.3d 1193, 1196 (10th Cir. 2005). Summary
judgment is appropriate only “if the pleadings, depositions, answ ers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “A disputed
fact is ‘material’ if it might affect the outcome of the suit under the governing
law, and the dispute is ‘genuine’ if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Schutz v. Thorne, 415 F.3d
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1128, 1132 (10th Cir. 2005). In applying this standard, moreover, “we view the
evidence and draw reasonable inferences therefrom in the light most favorable to
the nonmoving party.” Id. The nonmoving party must nonetheless present “facts
such that a reasonable jury could find in [his] favor.” Id.W ith these principles in mind, we address in turn the breach of contract,
negligent misrepresentation, and fraudulent concealment claims. Colorado law
governs this diversity case. See Renewal Ag. § XVII.
1. Breach of Contract
It is uncontroverted that CPI failed to remit to SM G the last three payments
due under the Renewal Agreement. But CPI claims its performance should be
excused because SM G breached the contract first by failing to provide the
quantity of student records prescribed by the contract. 5 Specifically, CPI argues
the contract required SM G to provide at least 9 million student records.
Alternatively, CPI argues that the Renew al Agreement stipulated a per-record
charge of $0.0515 which it claims it had more than satisfied when the dispute
arose. 6
5
Before the district court, CPI also claimed breach of contract based on
SM G’s alleged failure to provide the quality of names prescribed by the contract.
CPI fails to raise this issue on appeal, however, so it is deemed waived. See, e.g.,
Gaines-Tabb v. ICI Explosives, USA, 160 F.3d 613, 624 (10th Cir. 1998)
(“[A]rguments not set forth fully in the opening brief are waived.”).
6
The record belies this contention. During the term of the Renewal
Agreement, it is uncontested that SM G provided 8,494,066 student records and
(continued...)
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The district court found the quantity and price terms of the Renewal
Agreement to be ambiguous. On the one hand, the contract provides that SM G
owes CPI “up to 9 million” records over the course of the contract or “up to a
maximum of 600,000” records per month. Renewal Ag. § I. On the other hand, it
sets forth a per record charge of $0.0515 which only amounts to the total contract
price ($463,500) when multiplied by nine million names. Renew al Ag. § V.A. In
addition, the Renewal Agreement represented a 50% increase in price over the
Rental A greement, further buttressing CPI’s claim that it was entitled to
something “extra” (more names) over the renewal term.
Because of these questions, the district court looked outside the four-
corners of the contract to ascertain CPI’s payment obligations under the Renewal
Agreement. Particularly, relying on evidence of the course of dealing between
SM G and CPI, the district court concluded there was no material dispute that CPI
had breached its duty to make the final three payments under the Renewal
Agreement.
W e agree the contract was ambiguous with respect to quantity and, thus, the
district court was entitled to turn to parol evidence to help determine the parties’
intent. Boyer v. Karakehian, 915 P.2d 1295, 1299 (Colo. 1996) (“A court should
6
(...continued)
that CPI paid nine months of invoices totaling $347,625 (9 x 38,625). However,
when the purported per-record charge of $0.0515 is multiplied by 8,494,066
records, the total price is $437,444.39. Thus, even under CPI’s argument, it
underpaid SM G by $89,819.39 ($437,444.39 – $347,625).
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only admit parol evidence when the contract between the parties is so ambiguous
that their intent is unclear.”).
The record reflects that, up until the time of the dispute and including the
term of the Rental A greement, CPI had consistently made flat monthly payments
that did not vary depending on the relative number of addresses SM G happened to
provide each month. Under the Renewal Agreement, SM G billed CPI monthly for
$38,625 for 12 months, and CPI paid nine months of invoices without raising any
concerns about the price, quantity, or quality of the names. The parties conduct
shows CPI’s obligation was to make monthly payments of $38,625, regardless of
the exact number of names supplied in a particular month.
In the face of these facts, CPI argues:
The fact that College Partnership paid for 9 months of invoices before
realizing that the number of names w as not on target to reach 9 million
names and that the billings were on a monthly basis only indicates that
College Partnership trusted that it would receive the promised number
of names (and therefore SM G would be entitled to full payment) until
the deficiencies became obvious. The court improperly gave SM G an
inference to which it was not entitled.
Aplt. Br. at 23. 7 This contention is unpersuasive for several reasons.
7
Even if we were to accept CPI’s logic, it was not up to the company to
devise its own remedy for SM G’s alleged breach. The Renewal Agreement
delineated appropriate avenues for either party in case of breach:
Lessee shall be in default upon any failure to pay the monthly
installments due hereunder within ten days of the due date thereof.
Either party shall be in default upon the occurrence of any one of the
following events: (1) breach or failure by such party to perform any
(continued...)
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First, as we discussed, the parties’ course of dealing contemplated a
monthly flat fee, regardless of the exact number of names supplied in the month.
The contract itself does not provide an express commitment to a particular
quantity. Under the heading “Rental of High School Records,” it states: “SM G
hereby rents to Lessee up to 9 M ILLION (9,000,000) High School Records during
the term of this Agreement,” Renewal Ag. § I., with no particular commitment
that SM G would provide a specific quantity.
Second, the parties understood the quantity would vary because CPI
targeted different geographical locations throughout the year and individual
mailings would reflect that business strategy. Obviously some geographical
locations w ould generate more names than others, as w ould CPI’s decision to
target a location several times throughout the year. The evidence show s,
moreover, that SM G provided 8,494,066 records over the course of the year at
issue, and the monthly variations in names supplied confirm the parties’ practices
under the contract.
7
(...continued)
other term, condition or covenant of this Agreement and such breach or
failure shall continue uncured for a period of thirty days after receipt of
written notice thereof . . . .
Renewal Ag. § X. It is undisputed that on June 2, 2004, SM G notified CPI of its
delinquency on the M arch 2004 invoice, thereby adhering to the contract’s default
guidelines. Aplt. App. at 36. In response, and for the first time, CPI argued it
was entitled to credits in an amount exceeding that which SM G claimed it owed.
Id. at 38.
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Both the Rental and Renewal Agreements w ere clear that SM G “shall”
provide “up to a maximum of 600,000 High School Records” per month and CPI
does not claim SM G breached this commitment. When this monthly maximum is
multiplied by 12 months, moreover, the product is only 7.2 million, belying CPI’s
claim that SM G owed at least 9 million records under the contract. 8 In fact, CPI
knew at the time of renewal that SM G had a database of 5.7 million names and
expected to add up to 2 million new names.
In sum, we agree with the district court that SM G’s quantity obligation was
not fixed in absolute numerical terms, but rather subject to a cap of nine million
records over the course of the agreement. The course of dealing between the
parties shows CPI owed a duty to make twelve monthly payments of $38,625 over
the contract term ($463,500 total) irrespective of the precise number of records
provided by SM G each month.
2. Negligent M isrepresentation
CPI’s next contention is that SM G negligently misrepresented material
facts regarding quantity and quality when it entered into the contract w ith SM G.
Specifically, CPI points to two parts of the deal: (1) SM G’s representation in the
Renewal Agreement that it had a database of 5.7 million records and was
8
The 600,000 per month maximum is clearly inconsistent with the 9
m illion per year term regardless of how the latter is construed. Nevertheless, w e
agree with the district court’s determination that the obvious construction of the
contract w as that 9 million represented a ceiling and not a floor.
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undertaking to add one to two million more, and (2) SM G’s statement in its
marketing brochure that its database was 98% accurate.
Under Colorado law , negligent misrepresentation consists of negligently
providing false information on which others justifiably rely to their detriment:
The tort of negligent misrepresentation provides a remedy when money
is lost due to misrepresentation in a business transaction. To establish
a claim for negligent misrepresentation, it must be shown that the
defendant supplied false information to others in a business transaction,
and failed to exercise reasonable care or competence in obtaining or
communicating information on which other parties justifiably relied.
M ehaffy, Rider, Windholz & Wilson v. Central Bank, N.A., 892 P.2d 230, 236
(Colo. 1995) (internal citations omitted); see also Keller v. A.O. Sm ith H arvestore
Prods., Inc., 819 P.2d 69, 74 (Colo. 1991).
First, we find CPI’s negligent misrepresentation claim as to quantity
unavailing. In light of SM G’s delivery of over 8 million student records under
the Renewal Agreement, the district court correctly concluded that the quantity
representation did not establish a misrepresentation. In its brief, CPI says that
SM G represented it “had a database containing 5.7 million names and was
undertaking efforts to add 1 to 2 million additional names [] so that 9 million
unique or updated student records could be delivered.” Aplt. Br. at 25.
But SM G represented only that its database contained 5.7 million names
and that it “anticipate[d] compiling an additional 1–2 million records by June
2004.” Renewal Ag. § IV.C. SM G did not explicitly link its intention of
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expanding its database with any promise to provide exactly 9 million names.
Since reasonable reliance is a sine qua non of a negligent misrepresentation
claim, see e.g., M ehaffy, 892 P.2d at 236, CPI has failed to present an issue of
material fact as to a claim of misrepresentation on quantity.
Second, we conclude SM G’s 98% accuracy guarantee (made in its
marketing brochure) is also not a sound basis for a negligent misrepresentation
claim. As an initial matter, SM G suggests the claim cannot stand in the face of
its fully integrated contract with CPI, in which SM G specifically disclaimed any
representations as to accuracy.
The interplay between an integrated business contract and a claim for
negligent misrepresentation was explored most extensively by the Colorado
Supreme Court in Keller. In that case, the court concluded that a cause of action
for negligent misrepresentation could go forward against a manufacturer for
representations it made during the course of negotiations, despite the execution of
a fully integrated sales agreement. “A contract provision purporting to prohibit a
party to [a] contract from asserting a claim of negligent misrepresentation must be
couched in clear and specific language.” 819 P.2d at 74. The contract provision
at issue provided:
[Buyer has] read and understood the terms and conditions of this
purchase order including the warranties, disclaimers and terms and
conditions herein given to me, either by the manufacturer or the seller.
[Buyer relies] on no other promises or conditions and regards that as
reasonable because these are fully acceptable to [Buyer].
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Id. Construing this language, the court concluded that it “does not clearly and
specifically disclaim reliance . . . on all representations . . . prior to the execution
of the contract.” Id. Finding the contract language lacked the requisite
specificity, the court allowed a claim for negligent misrepresentation to go
forward.
W e conclude that the Renewal Agreement’s waiver and integration clauses
contain the kind of “specific language” necessary to preempt CPI’s negligent
misrepresentation claim as a matter of law. First, the warranty clause provided
that “neither the accuracy nor the completeness of the information provided to
lessee under this Agreement is guaranteed.” Renewal Ag. § VII. The accuracy of
student records is precisely what CPI claims SM G negligently misrepresented.
Second, and unlike Keller, here the integration clause is specific and
unambiguous. It provides:
Entire Agreement. This agreement and the confidentiality agreement
including without limitation, any and all exhibits and attachments to
either such agreement, constitute the entire agreement between the
parties hereto and supersedes all previous agreements and
understandings, whether oral or w ritten, express or implied . . . .
Renewal Ag. § XX. Third, the Renewal Agreement contains a broad limitation
on tort and negligence liability, § VIII.B., as well as a broad disclaimer of
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warranty. Id. at § V II. In these circumstances, CPI could not reasonably claim
that it relied on the prior representations about SM G’s database. 9
Even if the integration clause and other contract terms w ere insufficiently
specific, summary judgment was still proper because the 98% accuracy guarantee
was accompanied by a refund policy that CPI could have used, but did not.
SM G’s marketing brochure “guaranteed” 98% accuracy. But the guarantee
was accompanied by a refund policy that promised to refund undeliverable m ail in
excess of 2% . The refund policy, as it appears in SM G’s brochure, provides:
No list can be 100% accurate due to constant changes in the population.
Each list is guaranteed separately as indicated in this catalog. [The
college-bound lists at issue in this case promised 98% accuracy.] SM G
will refund 15 cents for each piece of undeliverable m ail in excess of
the guarantee as long as the list is mailed w ithin 30 days of the date you
receive the files.
9
This conclusion is consonant with our reasoning in Brooks v. Timberline
Tours, 127 F.3d 1273, 1276 (10th Cir. 1997), which analyzed Keller to mean that
a general integration clause is not sufficient to bar a claim for negligent
misrepresentation. However, additional contractual disclaimers— such as an
exculpatory clause in that case and the warranty and liability limitation clauses in
the instant case— could suffice:
Keller does not hold that negligent misrepresentation claims cannot be
w aived by an exculpatory agreement. Keller only holds that “the m ere
presence of a general integration clause in an agreement does not bar a
claim for negligent . . . misrepresentation.” Keller, 819 P.2d at 73
(citations omitted). A negligent misrepresentation claim can still be
barred by an exculpatory agreement prohibiting such tort claims. Under
the Keller reasoning, although the integration clause in the disputed
agreement does not bar Plaintiffs’ negligent misrepresentation claims,
the release provision does bar their claims.
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Aplt. App. at 716. Thus, the guarantee expressly provided a remedy for
undeliverable mail— any undeliverable mail in excess of the guarantee would be
eligible for a refund. In this way, the refund forms an inextricable part of the
guarantee.
CPI never took advantage of the refund offer— its remedy for undeliverable
names in excess of 2% . CPI contends the refund offer was worthless given the
cost of exercising the option. Nevertheless, it cannot claim reliance on the 98%
guarantee w hile dismissing the refund opportunity underlying the guarantee. In
short, it was unreasonable for CPI to selectively rely on one half of the guarantee
but not the other.
W e thus agree with the district court that CPI has failed to raise a genuine
issue of material fact on the negligent misrepresentation issue.
3. Fraudulent Concealment
Finally, CPI contends SM G fraudulently concealed facts w hich would
preclude SM G from satisfying its obligations under the Renewal Agreement in
two ways: (1) SM G would not be able to expand its database by 1–2 million
student records as promised because it had entered into consent decrees which
required it to delete millions of records from its database, (2) SM G could not
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satisfy the 98% guarantee set forth in its promotional materials because its
records had alleged delivery failure rates of 5% . 10
To prevail on a claim for fraudulent concealment under Colorado law, a
plaintiff must demonstrate: (1) the defendant failed to disclose a past or present
fact that (2) he or she had a duty to disclose, (3) w ith intent to induce plaintiff to
take a course of action he otherwise would not have taken and (4) plaintiff
justifiably relied on the omission. Wisehart v. Zions Bancorporation, 49 P.3d
1200, 1204 (Colo. App. 2002).
CPI’s evidence of fraudulent concealment regarding the quantity
representation was based on several consent decrees entered into by SM G in other
matters. The decrees required SM G to delete certain student records from its
database. CPI contends this demonstrates that from the beginning SM G knew it
could not meet its commitment of adding 1–2 million names to its database. The
district court granted summary judgment because (1) the contractual language
reflects merely an anticipatory comm itment to add 1–2 million new names, and
(2) SM G disclosed the existence of the consent decrees to CPI. W e agree.
As an initial matter, the Renewal Agreement includes no firm comm itment
to add 1–2 million records, stating only SM G “anticipates compiling 1–2 million
additional names.” Renewal Ag. § IV .C. (em phasis added). M oreover, this
10
CPI’s delivery rate computation is based on a computer program called
CASS, which checks addresses in direct mail lists against addresses recognized by
a United States Post Office database.
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aspirational language was even surpassed by SM G’s performance under the
contract. SM G provided almost 8.5 million records, which is 800,000 more than
the ceiling set by the anticipatory commitment in the first instance. Because the
consent decrees had no effect on SM G’s obligations under the contract, SM G was
under no duty to disclose them. 11
CPI’s second basis for fraudulent concealment relates to SM G’s purported
98% accuracy guarantee. CPI contends that SM G should have disclosed the
mailing lists had delivery failure rates of 5% according to the CASS program.
The district court concluded the CASS rates are not a reliable proxy for accuracy.
W e also agree on this point.
SM G’s 98% accuracy guarantee is one of deliverability: i.e., a
representation regarding the proportion of student addresses to w hich C PI’s
mailings will actually be delivered. CASS, however, marks as “inaccurate” or
“undeliverable” any address that has any error, no matter how slight (e.g., if the
“Smith Road” is represented as “Smith Street”); thereby weeding out as unreliable
many student records to which mail will likely be delivered. In other words, the
CASS certification rate necessarily represents a narrower subset of records than
11
CPI implies SM G’s commitment was to provide 1–2 million new student
records, rather than updated or duplicate records. But the record rebuts this
contention in two ways. First, CPI conceded that it regularly asked for names in
the same zip code more than once. Aplt. App. at 747. Second, the contract was
explicit that SM G could fulfill its quantity commitment with new or updated,
duplicate names. See Renewal Ag. at 3 (“M onthly deliveries may contain either
new or updated duplicate High School Records.”).
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those actually delivered. Since CASS data is the only evidence of reliability
proffered by CPI, the district court correctly concluded the CASS certification
rate is not sufficient to support the concealment claim. 12
Because CPI has failed to raise an issue of material fact with respect to its
fraudulent concealment claim, we affirm the district court’s grant of summary
judgment.
B. Exclusion of Expert Testim ony
CPI asserts the district court abused its discretion by excluding the bulk of
the testimony of its experts, Nathan Allen and Thomas Hiller. After an
exhaustive review , the district court rejected the testimony as not sufficiently
reliable under Rule 702 of the Federal Rules of Evidence and, thus, inadmissible.
The question here is w hether the district court adequately performed its
gatekeeping role pursuant to the standards set forth in Daubert v. M errell Dow
Pharms., 509 U.S. 579 (1993). W e conclude that it did.
“U nder Rule 702, a district court must satisfy itself that the proposed expert
testimony is both reliable and relevant, in that it will assist the trier of fact, before
permitting a jury to assess such testimony.” United States v. Rodriguez-Felix,
450 F.3d 1117, 1122–1123 (10th Cir. 2006). In determining whether expert
testimony is “both reliable and relevant,” our case law requires the district court
12
In fact, CPI’s own experts admitted that a CASS failure does not
necessarily mean an address is undeliverable. August 22, 2005 Order at 31.
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to undertake a two-step analysis. First, the court must determine whether the
expert is qualified to render an opinion. Second, if the expert is sufficiently
qualified, the court must determine w hether the expert's opinion is reliable under
the principles set forth in Daubert. 103 Investors I, L.P. v. Square D Co., 470
F.3d 985, 990 (10th Cir. 2006).
The methodology we use to assess reliability includes (1) whether the
proffered theory can and has been tested; (2) whether the expert’s opinion has
been subject to peer review; (3) the known or potential rate of error; and (4) the
general acceptance of a methodology in the relevant scientific community.
Daubert, 509 U.S. at 593–94. Reliability questions may concern the expert’s
data, method, or application of the method to the data. “Under Daubert, any step
that renders the expert’s analysis unreliable . . . renders the testimony
inadmissible. This is true whether the step completely changes a reliable
methodology or merely misapplies that methodology.” M itchell v. Gencorp Inc.
165 F.3d 778, 782 (10th Cir. 1999). Finally, it should be noted that the proponent
of expert testimony bears the burden of showing that its proffered expert’s
testimony is admissible. Ralston v. Smith & Nephew Richards, Inc., 275 F.3d
965, 970 n.4 (10th Cir. 2001). W e review de novo whether the district court
performed its role as gatekeeper in admitting or excluding expert testimony, and
we review for abuse of discretion the manner in which the district court performs
this role. Dodge v. Cotter Corp., 328 F.3d 1212, 1223 (10th Cir. 2003) (“Though
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the district court has discretion in how it conducts the gatekeeper function, we
have recognized that it has no discretion to avoid performing the gatekeeper
function.”). Provided the district court performs the role, w e will not disturb its
ruling absent our conviction that it is “arbitrary, capricious, whimsical or
manifestly unreasonable.” Goebel v. Denver & Rio Grande Western R.R., 346
F.3d 987, 990 (10th Cir. 2003) (internal citations omitted).
CPI proffered two experts. One was a computer programmer specializing in
direct mail marketing and the other a professional working in direct mail
marketing and information management. The computer programer, Nathan Allen,
analyzed lists used by CPI over a 23-week period in 2004 to “compile statistics on
the reliability, deliverability and duplication” present in the lists provided by
SM G. He analyzed over 8 million records from CPI’s various vendors, including
approximately 1.3 million records from SM G. The aim was to test SM G’s claims,
displayed in its promotional materials, that its records were “98% accurate.”
After completing his study, Allen forwarded his findings to the direct mail
expert, Thomas Hiller, for further analysis. Hiller sought to ascertain the relative
and absolute number of incorrect addresses in each vendor’s mailing list. He
concluded that SM G’s lists were the worst performing of the bunch. In addition,
Hiller reviewed SM G’s promotional materials to ascertain whether its 98%
guarantee w as feasible in light of his general know ledge of mailing list
management techniques. He concluded it was not.
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Applying the gatekeeper role explained in Dodge, 13 the district court
conducted a careful review of the testimony CPI sought to admit and concluded
that Allen’s study was not reliable enough to satisfy Rule 702. Likewise, it
excluded the portion of Hiller’s testimony that sought to expound on Allen’s study
for the same reason. W e agree with this assessment for several reasons.
First of all, the SM G lists Allen analyzed for purposes of the litigation were
not, in fact, the original lists provided by SM G to CPI. Upon receiving lists from
its various vendors, CPI promptly forwarded them to a contractor called PrimeNet
whose job was to integrate the lists into a single database for CPI’s use. During
the integration process, PrimeNet removed duplicate names and addresses,
checked that addresses w ere deliverable, and assigned a code to each record to
enable CPI to track the vendor source of each name.
In his deposition, Hiller testified he had detected potential inaccuracies in
the way PrimeNet coded the lists with the consequence that an untold number of
records may have been attributed to the wrong source. Neither expert attempted to
quantify the impact of PrimeN et’s modifications on Hiller’s assessment of SM G’s
lists, thus inserting an unknown error rate into the analysis. As a result, the
district court concluded the data used was “an unw orkable proxy for SM G’s lists”
13
“It is by now well established that [R ule] 702 imposes on a district court
a gatekeeper obligation to ‘ensure that any and all scientific testimony or
evidence admitted is not only relevant, but reliable.’” Dodge, 328 F.3d at 1221(quoting Daubert, 509 U.S. at 589).
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such that “this means these experts cannot vouch for the reliability of their own
data.” December 28, 2005 Order at 13.
In addition, Allen compared a January 2004 mailing list against a December
2004 address database. The CASS system uses a database of validated United
States Postal Service addresses which are updated monthly. Hiller’s conclusions
regarding the viability of SM G’s marketing promises hinged on census data
showing that 3.9% of the population moves quarterly. Because SM G admits to
updating its lists only quarterly, Hiller concluded the 98% reliability guarantee
was implausible. But as the district court found, Allen’s CASS analysis contained
an im portant flaw :
[A]ssuming the lists w ere 100% accurate w hen SM G provided them to
CPI, using a CASS update eleven months later would likely mean that
more than 10% of the addresses would be incorrect. In effect, Allen’s
review measured how accurate an SM G list is eleven months after it is
provided, while the relevant inquiry is how accurate the lists are within
30 days of when they are provided, which is SM G’s guarantee. Neither
Allen nor H iller addresses this issue.
Id. Thus, the information on which both experts intended to rely lacked sufficient
indicia of reliability to meet the Daubert standard.
“[W]e are concerned with the trial court’s performance of its obligation
under Rule 702 and Daubert, not upon the exact conclusions reached to exclude or
admit expert testimony.” Bitler v. A.O. Smith Corp., 391 F.3d 1114, 1119 (10th
Cir. 2004):
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Thus, although the district court “must, on the record, make some kind
of reliability determination,” United States v. Velarde, 214 F.3d 1204,
1209 (10th Cir. 2000), “w e recognize the w ide latitude a district court
has in exercising its discretion to admit or exclude expert testimony.”
Id. Under this standard, the district court did not abuse its discretion in excluding
the expert testimony.
C. Attorneys’ Fees
Finally, CPI contends the district court erred in awarding attorneys’ fees and
costs to SM G without an evidentiary hearing. CPI claims it proffered affidavits
that established substantial factual disagreements as to the reasonableness of the
number of hours billed and the hourly rates charged by SM G’s counsel. As a
result, CPI claims an evidentiary hearing was required under Colorado law.
The determination of reasonableness and amount of attorneys’ fees— and
whether an evidentiary hearing would be helpful in its analysis— is generally left
to the sound discretion of the district court. Harris M kt. Research v. M arshall
M ktg. & Com m., Inc., 948 F.2d 1518, 1527 (10th Cir. 1991). W here attorneys’
fees are governed by contract (as they are in this case), the district court has “far
less equitable discretion” than in cases where fees are subject to a fee-shifting
statute. United States ex rel. C.J.C., Inc. v. Western States M ech. Contractors,
Inc., 834 F.2d 1533, 1549 (10th Cir. 1987). In a contract fee case, the district
court is merely expected to enforce the bargain and “make the non-breaching party
whole.” Id. at 1547. Discretion of the court is therefore limited such that “fees
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are routinely granted and [contracts] enforced according to [their] terms.” Id. at
1548. Unlike in the case of a fee-shifting statute, “the trial court is not responsible
for independently calculating a ‘reasonable’ fee” and should only reject the
contractually-stipulated award if it is “unreasonable or inequitable.” Id. at
1549–50.
As to the need for an evidentiary hearing to help resolve the fees issue, the
court must determine whether “it has sufficient knowledge to make a decision
without a hearing based on its experience with the case, and briefs and affidavits
submitted by the parties.” Gamble, Simmons & Co. v. Kerr-M cGee Corp., 175
F.3d 762, 774 (10th Cir. 1999). W e review this determination for abuse of
discretion, and will not reverse unless we have “a definite and firm conviction that
the lower court made a clear error of judgment or exceeded the bounds of
permissible choice in the circumstances.” M oothart v. Bell, 21 F.3d 1499, 1504
(10th Cir. 1994).
CPI cites several reasons w hy the district court abused its discretion. First,
it claims it was entitled to an evidentiary hearing in order to clarify the testimony
of its fees expert, which the district court discounted as too “conclusory.” A plt.
Br. at 34. But we agree with the district court that “the desire to make a more
persuasive case in a hearing is not the kind of ‘clear error’ or ‘manifest injustice’”
requiring a hearing. April 3, 2006 Order at 4–5. In fact, the parties had ample
opportunity to submit supporting materials for their respective positions, and it is
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obvious from the district court’s order that it carefully reviewed all of the
proffered materials.
Second, CPI claims an evidentiary hearing was required to develop the
record as to the reasonableness of hourly rates and certain costs billed under
general headings like “employee overtime,” “word processing,” etc. Aplt. Br. at
35. In particular, it argues the court erred by (1) ignoring its claim that SM G used
“scorched earth” tactics to drive up the expense of litigation; (2) disregarding
evidence that SM G’s counsel and paralegal rates were “far in excess” of prevailing
national rates; (3) deferring to SM G’s choice of Pennsylvania counsel over its
local (less expensive) Denver counsel, and (4) “abandon[ing] its role of
considering the reasonableness of costs that SM G claimed.” 14 Aplt. Br. at 36–38.
But the district court considered these claims and found them w anting as a matter
of fact. On the basis of substantial documentation from SM G on fees and costs,
the court concluded, “CPI did not provide any evidence or argument that
persuaded me that this documentation was incomplete or inaccurate.” April 3,
2006 Order at 5.
Finally, CPI argues that the fees award in this case should be discounted
because of SM G’s litigation tactics. The district court did not agree and CPI has
14
CPI posts a laundry list of the allegedly stray costs— items such as
printing, copies, telephone— and takes issue with the fact that SM G offered no
“explanation of the purpose of these costs.” A plt. Br. at 37. But all the costs
listed are precisely the kind you would expect to flow from litigation and none is
particularly excessive.
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not demonstrated on appeal that this case is atypical of commercial litigation
generally, or that it involved especially sharp or aggressive practices. Civility
should be a part of every lawyer’s arsenal, and we lament its absence here. But
CPI neither made the case nor does the record support a finding that SM G acted in
malice or bad faith. In fact, SM G offered to settle before filing a lawsuit and won
on a motion for summary judgment. CPI, moreover, does not make an argument
on appeal that these tactics caused the overall number of hours billed to the case
by either local or outside counsel to be excessive. The fact that SM G used out-of-
state counsel (which it had previously retained) does not militate in favor of
discounting fees, certainly not in a federal civil action with a complicated
procedural history and substantial record.
In sum, on this record we conclude the court did not abuse its discretion in
denying an evidentiary hearing on fees and costs or in making the award it did.
IV. Conclusion
For the reasons stated above, we A FFIRM the decisions of the district court
in all respects.
Entered for the Court
Timothy M . Tymkovich
Circuit Judge
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No. 05-1427, Student M arketing Group, Inc. v. College Partnership, Inc.
H O LLO W A Y, J., concurring in part and dissenting in part:
I concur in Parts III-A-3 and III-B of the Order and Judgment. I dissent
from Parts III-A -1 and III-A -2, because I conclude that the district judge erred in
granting summary judgment for plaintiff-appellee Student M arketing Group on the
counter-claims of defendant-appellant College Partnership, Inc. for breach of
contract and negligent misrepresentation. Because I would reverse and remand on
this basis and because this would require vacating the award of attorneys’ fees, I
do not join Part III-C of the Order and Judgment.
I
On the breach of contract counterclaim, I agree with the majority and with
the district judge that the Renewal Agreement is ambiguous on the subject of the
number of records that Student M arketing was obligated to provide for the more
than 50% increase in price that it w as charging over the previous year’s rate.
Unlike the majority, however, I believe that resolution of this ambiguity on
summary judgment was improper here.
College Partnership paid a flat monthly charge for the first nine months of
the term of the renewal agreement and did so without complaint about price,
quantity or quality of names. This shows, the majority asserts, that College
Partnership was bound to make these monthly payments no matter how many (or
how few) names were provided. This is simply a non sequitur, in my view.
Indeed, taken at face value, it means that if Student M arketing had decreased the
number of names provided from the initial year (say from 7.2 million to 72)
instead of increasing the number as promised, College Partnership would still have
been obligated to pay at the substantially higher rate called for in the renewal
agreement. I think this a patently unreasonable reading of the Renewal
Agreement, and yet I see no way that this implication can be avoided consistently
with the majority’s interpretation of the contract. And I certainly cannot agree
with the conclusion that this result was properly reached via summary judgment,
when a much more reasonable construction of the contract is also possible.
M oreover, even if I were to overlook this troubling implication of the
majority’s holding, the reasoning is unpersuasive. The majority notes College
Partnership’s argument that the monthly payment arrangement only reflects
College Partnership’s trust that Student M arketing would in fact provide nine
million records before the year was up, followed by the eventual realization that
its trust had been misplaced. This, I think, is a reasonable inference and alone
should defeat summary judgment.
To rebut this contention, the majority first makes a merely circular
argument, stating that the contract did not provide an express commitment for
Student M arketing to provide a certain number of names. The original task was to
resolve the ambiguity of whether or not the contract called for Student M arketing
to provide nine million names, or only up to nine million. In trying to resolve this
ambiguity, the majority follows Student M arketing’s suggestion to look at the
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requirement for payment in fixed amounts. In considering the implications of that
requirement, the majority finds that it shows that the promise was only to provide
up to nine million names because the contract did not say otherw ise.
So, in other words, the majority sets out to decide what the ambiguous
phrase “up to nine million names” means. But when College Partnership gives one
reason why it might mean a minimum of nine million names, the court rejects this
possibility because the contract does not expressly require Student M arketing to
provide nine million names. This begs the question and so proves nothing at all.
Next, the majority notes evidence that the parties understood that the
quantity of names provided would vary from month to month, even though the
payments were to be a fixed amount each month. But again, I think that it is a non
sequitur to say that this shows that the parties had not agreed that Student
M arketing would, by the end of the contract year, provide nine million names. It
simply is not the case that the payment arrangement supports only inferences
favoring Student M arketing.
In sum, I would reverse the district court’s grant of judgment as a matter of
law to Student M arketing on College Partnership’s counterclaim for breach of
contract.
II
I w ould also reverse the district court’s grant of summary judgment to
Student M arketing on College Partnership’s counterclaim for negligent
-3-
misrepresentation. M y first point of disagreement with the majority in its analysis
of this claim is on the issue whether College Partnership’s negligent
misrepresentation claim may be maintained notwithstanding the renewal
agreement’s integration clause and limitation on consequential damages. Colorado
law applies in this diversity case, and it sets a high standard for contractual
language to be effective in barring tort claims.
The leading Colorado case is Keller v. A.O. Smith Harvestore Products, 819
P.2d 69 (Colo. 1991). That case held that a negligent misrepresentation claim
could be maintained in spite of the contract’s integration clause, which included
this language: Buyer relies “on no other promises . . . .”
The district court said that the language in the renewal agreement at issue in
this case was “similar to the provision in Keller” and so insufficient to bar a claim
for negligent misrepresentation. W ithout mentioning this ruling by the district
judge, the majority reaches the opposite conclusion.
The Renewal Agreement at issue in the present case (as quoted in the
majority’s order at 18), includes a statement that the accuracy of information is not
guaranteed. Similarly, in Keller, the contract provided that the advertisements,
brochures, written and oral statements “are not guarantees . . . .” 819 P.2d at 74.
The Renewal Agreement in our case contains an integration clause, which the
majority quotes and relies upon, that says that the written agreement “supersedes
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all previous agreements . . . .” In Keller (as already noted and as quoted in the
majority’s order) the contract said [Buyer relies] on no other promises . . . . .” Id.
The majority also notes that the Renew al Agreement in this case “contains a
broad limitation on tort and negligence liability . . . .” But the majority cites no
Colorado law regarding the effect of the limitation. M ore importantly, the
majority does not mention the fact that the provision referred to limits
consequential but not direct damages, a distinction that the district judge found
material, as I do.
The majority unavailingly cites Brooks v. Timberline Tours, 127 F.3d 1273,
1276 (10th Cir. 1997), as further support for the holding that the Renewal
Agreement effectively bars the negligent misrepresentation claim. But the
language in Brooks is much more specific, detailed, and comprehensive than the
language at issue here. The contract there included an express release of almost
any conceivable claim. And in the portion of Brooks that addressed the negligent
misrepresentation claim and the reliance on Keller, this court said specifically that
although the integration clause did not bar the claim, the release did. 127 F.3d at
1276. I agree with the district court that the release language in Brooks was “more
sweeping and specific.” (Again, the majority simply does not mention this holding
of the district court, much less attempt to show why it is rejected.)
The majority goes on to hold that Student M arketing would be entitled to
summary judgment on the negligent misrepresentation claim on the alternative
-5-
ground that the 98% accuracy provision of the Renewal Agreement was
accompanied by a remedial (refund) provision, which College Partnership had not
attempted to employ. Although the refund offer was – to those in the business –
transparently worthless because it would cost more to avail oneself of the remedy
than would be recouped, the majority nonetheless declares – as a matter of law but
without citation of authority – that College Partnership cannot claim to have relied
on the representation that the lists would be 98% accurate “while dismissing the
refund opportunity underlying the guarantee.”
College Partnership, however, adduced evidence that it did rely on the
promise, even though it knew that the refund provision was worthless as a
practical matter. 1 I am aw are of no Colorado law that makes the presence of an
1
The district court held that College Partnership’s reliance was
unreasonable as a matter of law because that court concluded that College
Partnership’s own expert, M r. Hiller, testified that the guarantee taken in its
entirety was not misleading and would not be to companies in the industry. I
believe that the district court erred by construing ambiguous evidence against
College Partnership on summary judgment. M r. Hiller w as asked whether “to
anyone in the industry that knows what they are doing, it’s not a misleading
guarantee, is it?” M r. Hiller answered “No.” But from the context of the
testimony, it is not entirely clear what the w itness meant, and this is especially so
because M r. Hiller almost immediately thereafter said, “But the 98 percent is
misleading.” III Aplt. App. 821. I believe that the testimony was ambiguous
because M r. Hiller, who was not a lawyer, appears to have been addressing the
refund remedy, rather than the guarantee of accuracy, in the portion of his
testimony on which the district court relied. But his statement that the promised
98 per cent accuracy was misleading quite clearly addresses and supports the
precise point put in issue in the negligent misrepresentation counterclaim. The
ambiguity is, to me, sufficiently apparent to require considering that
interpretation of the testimony on summary judgment.
-6-
illusory contract remedy an affirmative defense to the tort of negligent
misrepresentation.
In conclusion, I am persuaded that the district court erred in granting
summary judgment on the breach of contract and negligent misrepresentation
counterclaims, and I would reverse and remand for the reasons given.
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