Washington v. Kellwood Company , 714 F. App'x 35 ( 2017 )


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  • 16-3413-cv (L)
    Washington v. Kellwood Company
    UNITED STATES COURT OF APPEALS
    FOR THE SECOND CIRCUIT
    SUMMARY ORDER
    RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
    SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
    BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
    WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
    MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
    NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
    COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
    At a stated term of the United States Court of Appeals for the Second Circuit, held
    at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
    York, on the 2nd day of November, two thousand seventeen.
    PRESENT: JOHN M. WALKER, JR.,
    REENA RAGGI,
    PETER W. HALL,
    Circuit Judges.
    ----------------------------------------------------------------------
    DARYL K. WASHINGTON, SUNDAY PLAYERS,
    INC.,
    Plaintiffs-Appellants-Cross-Appellees,
    v.                                     Nos. 16-3413-cv
    16-3664-cv
    KELLWOOD COMPANY,
    Defendant-Appellee-Cross-Appellant.
    ----------------------------------------------------------------------
    APPEARING FOR APPELLANT:                          DOUGLAS CAWLEY, McKool Smith, P.C.,
    Dallas, Texas (Lauren Fornarotto, McKool
    Smith, P.C., New York, New York; Meredith
    Elkins, McKool Smith, P.C., Dallas, Texas;
    Aubrey “Nick” Pittman, The Pittman Law Firm,
    P.C., Dallas, Texas, on the brief).
    APPEARING FOR APPELLEE:                          JAMES M. HIRSCHHORN (Mark S. Olinsky,
    Kenneth R. Schachter, Katherine M. Lieb, on
    the brief), Sills Cummis & Gross, P.C., New
    York, New York.
    1
    Appeal from a judgment of the United States District Court for the Southern
    District of New York (Sarah Netburn, Magistrate Judge).*
    UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
    AND DECREED that the judgment entered on September 30, 2016, is AFFIRMED.
    Plaintiffs Daryl K. Washington and Sunday Players, Inc. (collectively, “SP”) sued
    defendant Kellwood Company (“Kellwood”) for breach of a November 2003 license
    agreement (the “License Agreement”), pursuant to which Kellwood became the exclusive
    manufacturer, licensee, and promoter of SP’s athletic compression wear products. SP
    here appeals from the entry of a $1.00 judgment notwithstanding a jury award of $4.35
    million and from the denial of a new trial on damages.1 Kellwood cross-appeals from
    the liability judgment. We assume the parties’ familiarity with the facts and record of
    prior proceedings, which we reference only as necessary to explain our decision to
    affirm.
    1.        Kellwood’s Liability Challenge
    In challenging the liability judgment, Kellwood faults the district court’s
    (1) evidentiary rulings, and (2) determination that Kellwood was not absolved of its
    *
    The parties consented to proceed before a magistrate judge for all purposes pursuant to
    28 U.S.C. § 636(c)(1).
    1
    The district court initially granted SP a new trial on lost-business-value damages, but
    granted judgment notwithstanding the verdict when SP failed to proffer evidence that
    would establish such damages.
    2
    marketing obligations to SP by the License Agreement provision tying marketing outlays
    to total sales of SP products.2
    a.     Evidentiary Rulings
    Kellwood contends that the district court erred in (1) allowing a former SP
    marketing employee to give lay opinion testimony on the reasonableness of Kellwood’s
    marketing efforts, and (2) excluding evidence of the profitability of Kellwood’s
    performance-apparel division.     We review both rulings for abuse of discretion, see
    United States v. Natal, 
    849 F.3d 530
    , 534 (2d Cir. 2017); United States ex rel. Feldman v.
    Van Gorp, 
    697 F.3d 78
    , 93 (2d Cir. 2012), which is not evident here.
    The brief lay opinion testimony of a former SP employee was “rationally based on
    [his] perception” from the time of his SP employment. See Fed. R. Evid. 701(a). In
    any event, such testimony was harmless given concessions from Kellwood’s witnesses
    that no marketing efforts were conducted. See Bank of China, N.Y. Branch v. NBM
    LLC, 
    359 F.3d 171
    , 183 (2d Cir. 2004) (holding that lay witness testimony arguably
    based on specialized knowledge reviewed only for harmless error).           No different
    conclusion is warranted because SP’s counsel in summation referred to the witness as an
    “expert” in marketing because the district court promptly gave a curative instruction,
    which the jury is presumed to have followed. See, e.g., United States v. Agrawal, 
    726 F.3d 235
    , 258 (2d Cir. 2013).
    2
    We need not address Kellwood’s argument that the district court abused its discretion
    in excluding an Under Armour commercial, as the evidence was offered only as to
    damages, an issue on which we affirm the district court’s nominal judgment in
    Kellwood’s favor.
    3
    As for the exclusion of evidence that Kellwood’s performance-apparel division
    was profitable, we identify no abuse of discretion because that evidence was proffered
    only to rebut the argument that Kellwood had attempted to purchase SP, which was of
    tangential relevance to the reasonableness of Kellwood’s marketing efforts.
    b.        Denial of Judgment as a Matter of Law
    Kellwood argues that, as a matter of law, it had no marketing obligations to SP
    because the License Agreement limited its marketing expenditures based on SP’s net
    sales, which were minimal.       We review a district court’s denial of a Fed. R. Civ. P.
    50(b) motion de novo, applying the “same standard as the district court,” and granting
    judgment only if the evidence, “viewed in the light most favorable to the nonmoving
    party,” demonstrates that judgment for the movant was the only conclusion that
    reasonable persons could have reached. Morse v. Fusto, 
    804 F.3d 538
    , 546 (2d Cir.
    2015). Like the district court, we conclude that Kellwood was not entitled to judgment
    on that basis.
    Under New York law, which the License Agreement identifies as controlling,
    exclusive license agreements generally require, whether expressly or impliedly, the
    licensee to use reasonable efforts to market the licensor’s products. See, e.g.,
    Contemporary Mission, Inc. v. Famous Music Corp., 
    557 F.2d 918
    , 923–24 (2d Cir.
    1977); Zilg v. Prentice-Hall, Inc., 
    717 F.2d 671
    , 680–82 (2d Cir. 1983). The License
    Agreement here is consistent with this requirement.      See App’x 2992 (“Licensee shall
    promote the Licensed Products and exploit this Agreement granted herein as provided in
    Schedule A, Item 10.”). No different conclusion is warranted by Schedule A, Item 10 of
    4
    the License Agreement, which states that Kellwood “shall expend an amount equal to
    three percent (3%) of Net Sales of the License[d] Products towards marketing.” 
    Id. 2999. That
    clause identifies the minimum marketing expenditures to which Kellwood
    was obligated, and says nothing of the efforts it was required to employ in promoting
    SP’s products. Indeed, this Circuit has squarely rejected the proposition that “technical
    compliance” with such “spending and appointment requirements” satisfies the exclusive
    licensee’s obligation to make “reasonable efforts” to promote the licensor’s products.
    Contemporary Mission, Inc. v. Famous Music 
    Corp., 557 F.2d at 923
    .               As for the
    sufficiency of the liability evidence, we are satisfied upon our independent review of the
    record that the jury had a legally sufficient basis to conclude that Kellwood failed
    adequately to market SP’s products.
    Accordingly, we identify no error in the denial of Kellwood’s motion for judgment
    as a matter of law on liability.
    2.     SP’s Damages Challenges
    In challenging the district court’s vacatur of the jury’s $4.35 million damages
    award, SP disputes the exclusion at trial of methodologies employed by its damages
    expert. SP also faults the district court’s denial of a new damages trial, and its award of
    $1 nominal damages.
    a.     Exclusion of Damages Testimony
    We review decisions to exclude an expert methodology only for abuse of
    discretion, see In re Pfizer Inc. Sec. Litig., 
    819 F.3d 642
    , 658 (2d Cir. 2016), and identify
    none here.    The district court acted within its discretion in excluding the expert’s
    5
    “market forecast” methodology as speculative, as it was premised only on the
    impressions of an MTV employee, and an MTV projection commissioned in anticipation
    of a potential commercial for SP.3 The same conclusion obtains as to SP’s efforts to
    introduce the projections and surveys themselves.
    Nor did the district court abuse its discretion in precluding the expert from
    testifying as to SP’s lost business value as of January 2007, as the contract was breached
    in 2005, and New York law requires that the value of an income-producing asset be
    calculated on the date of the breach. See Sharma v. Skaarup Ship Mgmt. Corp., 
    916 F.2d 820
    , 826 (2d Cir. 1990).
    Finally, the district court did not abuse its discretion in precluding the expert from
    testifying about SP’s expected profits through January 2010.           That theory—which
    presumed that (1) the contract would have been profitable, (2) Kellwood would not have
    breached it, and (3) the parties would have renewed it upon its January 2007
    expiration—was both speculative and belied by the contract itself, which gave Kellwood
    the unilateral right to decide whether to renew.
    b.     Motion for Judgment Notwithstanding the Jury Verdict
    SP argues that the district court erred in granting judgment notwithstanding the
    jury’s damages verdict on (1) SP’s expectation of lost future profits, and (2) the lost value
    of SP’s business at the time Kellwood broke off its exclusive manufacturing and
    marketing relationship with SP. As already discussed, we review the district court’s
    3
    Magistrate Judge Dolinger identified this evidentiary concern and excluded the
    witness’s testimony prior to the case being reassigned to Magistrate Judge Netburn.
    6
    decision on such a motion de novo, granting judgment only if there was but one verdict
    that the jury could reasonably have reached. See Morse v. 
    Fusto, 804 F.3d at 546
    .
    Like the district court, we conclude that Kellwood was entitled to judgment as a matter of
    law on SP’s damages claims.
    1.     Lost Future Profits
    Under New York law, a plaintiff deprived of his entire stake in a business by a
    contractual breach may sue either for lost future profits or the lost value of his business
    on the date of breach. See Schonfeld v. Hilliard, 
    218 F.3d 164
    , 172, 175–76 (2d Cir.
    2000).     To prove lost profits, a plaintiff must demonstrate “both the existence and
    amount of such damages with reasonable certainty.” 
    Id. at 172.
    Although the damages
    “need not be proven with mathematical precision, they must be capable of measurement
    based upon known reliable factors without undue speculation.” 
    Id. (internal quotation
    marks omitted).      “[E]vidence of lost profits from a new business venture receives
    greater scrutiny because there is no track record upon which to base an estimate.” 
    Id. A new
    venture whose profits are “purely hypothetical” and that would require “untested”
    sales to “hypothetical” consumers does not support a damages award.             
    Id. at 173
    (internal quotation marks omitted).
    As the district court correctly observed, SP failed to proffer evidence from which
    lost profits could be established with reasonable certainty. The sole profits calculations
    presented to the jury were those of its expert, who testified that, had Kellwood reasonably
    marketed SP’s products, SP’s 2005–2007 revenues would have been 50% of those of the
    compression wear market leader, Under Armour, in 2002–2004. Under Armour was not
    7
    a reasonable comparator. At the time in question, Under Armour was an established
    business with annual sales between $49.5 million and $195 million. Indeed, by the end
    of 2002, it controlled approximately 80% of the market.           By contrast, during the
    two-year comparison period, SP was a small start-up, producing a product similar to
    brand-name companies, but with no record of notable sales. Throughout its existence,
    SP sold less than $200,000 in merchandise to only a few small retailers and high school
    and college athletic teams.    The expert’s testimony that SP’s revenues were reasonably
    certain to increase from a few hundred thousand dollars to approximately $80,000,000 in
    two years4 was so unfounded that it failed to establish any legal basis for awarding
    lost-profits damages.
    In urging otherwise, SP argues that its profits were made certain by Kellwood’s
    manufacturing resources and MTV’s expressed willingness to produce a television
    commercial.       The argument fails because Kellwood’s capacity to produce SP’s
    compression wear speaks not at all to whether consumers would purchase its products
    over those of competitors. Further, undisputed trial evidence showed that MTV offered
    Kellwood a draft agreement to run an SP commercial, but only if Kellwood, inter alia,
    (1) paid a deposit, (2) agreed to pay MTV a 5–8% royalty on SP’s future sales, and
    (3) demonstrated that more than $500,000 of SP’s products could be sold. SP failed to
    show that it could meet this required sales threshold. Thus, assumptions that, but for
    Kellwood’s breach, a commercial would have aired and consumers would have
    purchased millions of dollars in SP’s products were “purely hypothetical.” 
    Id. at 172.
    4
    Under the License Agreement, SP was entitled to a 5% royalty on sales of its products.
    8
    2.     Lost Business Value Damages
    Where lost future profits cannot be obtained, the “most accurate and immediate
    measure of damages” of a nascent business is its “market value . . . at the time of breach.”
    
    Id. at 176.
    Such estimates are “inherently less speculative” than an estimation of future
    profits, as they may be measured by proof of “what a buyer is willing to pay for the
    chance” that the business will produce substantial income. 
    Id. at 177
    (emphasis in
    original). In proving such a claim, a plaintiff must nonetheless establish the value lost
    by the business with “reasonable certainty.” 
    Id. As the
      district   court    correctly   observed,     SP’s    expert’s    $532,000
    lost-business-value calculation fails with the $3.783 million lost-profits calculation, as
    both were premised on the same “yardstick” comparison to Under Armour’s revenues.
    Nor could such damages be proved, as in Schonfeld, by reference to a “price at which the
    [business] would change hands between a willing buyer and a willing seller.” 
    Id. at 178
    (internal quotation marks omitted).         Although Washington himself testified that
    Kellwood had offered to purchase SP, no evidence was proffered to suggest the price at
    which the business might have changed hands at that time.
    3.     Nominal Damages
    SP argues that it was entitled to present alternative damages evidence at a new
    trial, rather than to have judgment entered in a nominal amount. This is particularly so,
    it contends, because the jury’s liability verdict established the fact of Kellwood’s breach.
    See, e.g., 
    id. at 182
    (“[P]ursuant to the wrongdoer rule, where . . . the existence of damage
    is certain, and the only uncertainty is as to its amount, . . . the burden of uncertainty as to
    9
    the amount of damage is upon the wrongdoer.”) (internal quotation marks omitted); see
    also Lexington Prods. Ltd. v. BD Commc’ns, Inc., 
    677 F.2d 251
    , 254 (2d Cir. 1982)
    (“Where the evidence shows such a clear and definite measure of damages, an award of
    nominal damages cannot stand.”).     We do not agree.
    First, we have already concluded that SP failed to establish such damages as
    would satisfy New York law’s requirement of reasonable certainty.             Accordingly,
    because we affirm the district court’s motion for judgment notwithstanding the verdict,
    we need not authorize any retrial. Cf. Weisgram v. Marley Co., 
    528 U.S. 440
    , 457
    (2000) (“[T]he authority of courts of appeals to direct the entry of judgment as a matter of
    law extends to cases in which, on excision of testimony erroneously admitted, there
    remains insufficient evidence to support the jury’s verdict.”); accord Amorgianos v. Nat’l
    R.R. Passenger Corp., 
    303 F.3d 256
    , 267 (2d Cir. 2002). This is not a case, as in
    Lexington Products, where nominal damages were unwarranted, as SP had no sales
    history or contractual entitlements from which damages could reasonably be calculated.
    See Lexington Prods. v. BD Commc’ns, 
    Inc., 677 F.2d at 253
    –54.
    Second, and in any event, SP failed to demonstrate an ability to proffer evidence
    of damages with reasonable certainty for use at any new trial. Given the opportunity to
    put forward such evidence, SP instead provided projections from Kellwood, MTV, and
    Washington about what SP’s sales might have been, and of the value of other established
    and proven clothing brands, with values in the range of hundreds of millions of dollars.
    But we have already explained why such optimistic projections and valuations by
    reference to name-brand companies failed to establish damages with reasonable certainty.
    10
    The cases SP cites for the proposition that its principals could testify to
    expectations of future revenues are likewise inapposite, as they arose in the context of
    established companies. Compare Securitron Magnalock Corp. v. Schnabolk, 
    65 F.3d 256
    , 265 (2d Cir. 1995) (deeming testimony regarding “flattening out” of profits
    permissible against backdrop of sales “over a period of years”), and Lightning Lube, Inc.
    v. Witco Corp., 
    4 F.3d 1153
    , 1174–77 (3d Cir. 1993) (deeming damages established with
    reasonable certainty based on testimony from company owner, where company had
    operational history, and performance had “surpassed” owner’s projections in past years),
    with Von der Ruhr v. Immtech Int’l, Inc., 
    570 F.3d 858
    , 862–65 (7th Cir. 2009)
    (explaining that it is a “difficult task . . . (1) to prove lost profits damages (2) in a
    complex market (3) from a product that has never been sold (4) without [valid] expert
    testimony”), and US Salt, Inc. v. Broken Arrow, Inc., 
    563 F.3d 687
    , 690 (8th Cir. 2009)
    (rejecting testimony by company president where “record demonstrate[d] that [he] could
    not identify any customer interested in buying . . . a specific amount of [the product] at a
    specific price”).
    Accordingly, we conclude that the district court did not err in granting Kellwood
    judgment as a matter of law on SP’s damages claims, and in entering a nominal-damages
    award of $1.00 in SP’s favor.
    11
    3.    Conclusion
    We have considered the parties’ other arguments and conclude that they are
    without merit. Accordingly, we AFFIRM the judgment of the district court.
    FOR THE COURT:
    Catherine O’Hagan Wolfe, Clerk of Court
    12