JGR Inc v. Thomasville

• Court: Court of Appeals for the Sixth Circuit
• Decided: June 3, 2004
• Docket: 02-3731
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 JGR, Inc. v. Thomasville Nos. 02-3640/3731 ELECTRONIC CITATION: 2004 FED App. 0163P (6th Cir.) Furniture Industries, Inc. File Name: 04a0163p.06 _________________ UNITED STATES COURT OF APPEALS COUNSEL FOR THE SIXTH CIRCUIT ARGUED: Michelle J. Sheehan, REMINGER & _________________ REMINGER, Cleveland, Ohio, for Appellant. Marvin L. Karp, ULMER & BERNE, Cleveland, Ohio, for Appellee. JGR, INC., X ON BRIEF: Michelle J. Sheehan, Roy A. Hulme, Plaintiff-Appellee/ - REMINGER & REMINGER, Cleveland, Ohio, for Appellant. Cross-Appellant, - Marvin L. Karp, ULMER & BERNE, Cleveland, Ohio, for - Nos. 02-3640/3731 Appellee. - v. > _________________ , - OPINION THOMASVILLE FURNITURE - _________________ INDUSTRIES, INC., - Defendant-Appellant/ - BOYCE F. MARTIN, JR., Circuit Judge. In this diversity Cross-Appellee. - breach of contract action, Thomasville Furniture Industries, - Inc. appeals a $1,500,000 judgment in favor of JGR, Inc., and N JGR cross-appeals the denial of pre-judgment interest. We Appeal from the United States District Court note at the outset that although it is unclear whether “JGR, for the Northern District of Ohio at Cleveland. Inc.” is the actual, formal name of the plaintiff company – as No. 96-01780—Ann Aldrich, District Judge. opposed to an abbreviation – we refer to it as such because the parties have done so. For the reasons discussed below, we Argued: January 29, 2004 hold that the district court abused its discretion in permitting a JGR witness to give lay opinion testimony about JGR’s lost Decided and Filed: June 3, 2004 profits and loss of business value, and that the improper admission of this testimony requires vacature of the damages Before: MARTIN and MOORE, Circuit Judges; WEBER, award and remand for a new trial solely on the issue of Senior District Judge.* damages. I. FACTUAL AND PROCEDURAL BACKGROUND The contract at issue in this case is a written agreement called the “Thomasville Furniture Industries, Inc. * ‘Thomasville Gallery’ Program” – which we will refer to as The Hon orable H erman J. W eber, Senior United States District the “Gallery Agreement” – that governs the relationship Judge for the Southern District of Ohio, sitting by designation.

1 Nos. 02-3640/3731 JGR, Inc. v. Thomasville 3 4 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

between Thomasville, a furniture manufacturer, and furniture display area devoted solely to Thomasville products, as retail establishments that Thomasville approves as specified in the 1990 Gallery Agreement. Gerald’s was “Thomasville Galleries.” Pursuant to the Gallery Agreement, located across the street from another furniture store, called Thomasville Galleries were “expected to” abide by certain “Furniture Land,” which was owned and operated by an rules and requirements, such as maintaining a high quality individual named Mike Baker.1 Despite a promising store, allowing Thomasville to exercise control over beginning, Gerald’s eventually began to lose money and JGR personnel training, signage and other aspects of the business, became unable to pay Thomasville for the products that it and – most importantly for purposes of this appeal – purchased for its Gerald’s store. Thomasville provided credit displaying Thomasville products in an area that conformed to counseling services to JGR, but was forced to begin holding detailed specifications. In exchange, Thomasville offered its orders until JGR could pay for them. Thomasville Galleries assistance with interior design, advertising and research, as well as a non-exclusive license to In March 1992, Thomasville revised its Gallery Agreement. use Thomasville trademarks in connection with product The most significant change, for purposes of this case, was promotions. the addition of an “expectation” that Thomasville Galleries would “[d]isplay Thomasville product covering at least 7,500 If a retailer wished to be designated a Thomasville Gallery sq. ft. of selling floor space of which a physically separate and and agreed to the terms set forth in the Gallery Agreement, its distinct area of no less than 5,000 sq. ft. (the “Gallery”) is set representative would sign the last page of the program aside for the sole and exclusive purpose and function of description and submit it to Thomasville for approval. This arranging, selling, and displaying Thomasville wood, is what Gerald Yosowitz, JGR’s main principal, did on behalf upholstery, and other Thomasville home furnishings of JGR in April 1990, and Thomasville approved JGR as a products.” (Emphasis added.) A March 10, 1992, letter Thomasville Gallery the following month. The version of the written by Thomasville Vice President Daniel Grow Gallery Agreement that was in effect at that time provided, highlights this change and states that Thomasville Galleries among other things, as follows: “should establish a plan to be at this new minimum square footage level of 7,500 sq. ft. by January 1, 1993. Any new 2. Expectations of Retailers. Retailers designated as Galleries will be at the 7,500 sq. ft. level when they open.” Thomasville Galleries will be expected to: Yosowitz, on behalf of JGR, signed and returned the (a) Set aside a physically separate and distinct area of revised Gallery Agreement to Thomasville with handwritten its selling floor space with a minimum of 5,000 notes on the back. These notes state, in relevant part: square feet for the sole and exclusive purpose and function of arranging, selling, and displaying . . . I sign this agreement under the condition that all Thomasville furniture products, including both other Thomasville dealers in my marketing area are held Thomasville wood furniture and Thomasville upholstery. 1 On September 15, 1990, JGR opened a furniture store in Prior to forming the JGR business, Yosowitz worked with Baker at Mentor, Ohio, called “Gerald’s,” with a 5,000-square foot Furniture Land. According to Yo sowitz, his relationship with Baker deteriorated following his departure from Furniture Land. Nos. 02-3640/3731 JGR, Inc. v. Thomasville 5 6 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

to the same conditions . . . . If I correctly understand the Ultimately, no longer able to continue doing business, letter from Dan Grow (dated 3/10/92) which spells out Gerald’s closed its doors on October 2, 1993. Thomasville’s new guidelines (including square footage requirements) all Thomasville dealers existing or new Although each party in this case has asserted various claims will be held to the same requirements. If this is in fact against the other,2 the sole claim with which we are the case my concearns [sic] have been addressed . . . . concerned in this appeal is JGR’s claim that Thomasville breached the 1992 Gallery Agreement. The essence of that In a letter dated August 4, William Carrico, also a claim is that Thomasville breached the Agreement by Thomasville Vice President, acknowledged Yosowitz’s notes permitting Baker’s to sell Thomasville furniture without and stated that Thomasville would “review the matter by requiring Baker’s to “[d]isplay Thomasville product covering July 1, 1993,” after letting “matters settle out.” at least 7,500 sq. ft. of selling floor space of which a physically separate and distinct area of no less than 5,000 sq. In the meantime, in the fall of 1992 Thomasville negotiated ft. (the “Gallery”) is set aside for the sole and exclusive with Furniture Land, JGR’s competitor, a different marketing purpose and function of arranging, selling, and displaying agreement, called the “Thomasville Home Furnishings Store Thomasville wood, upholstery, and other Thomasville home Agreement.” Pursuant to this agreement, the name of the furnishings products.” This claim was the subject of a jury Furniture Land chain would be changed to “Baker’s” and the trial featuring the testimony of several witnesses. JGR chain would carry the Thomasville line in seven stores, presented the only damages witness, a certified public including the one across the street from Gerald’s, as well as accountant and lawyer named James Gornik. Gornik testified in a brand new 10,000 square foot store devoted solely to as to the amount of lost profits and loss of business value that Thomasville products. In November 1992, pursuant to the JGR suffered as a result of Thomasville’s alleged breach of Home Furnishings Agreement, Furniture Land changed the the 1992 Gallery Agreement. Thomasville filed a motion in name of all its stores in the Cleveland area to “Baker’s” and limine to exclude Gornik’s testimony on the ground that it kicked off a “grand re-opening” of the store across the street from Gerald’s. Baker’s advertised this grand opening with a circular featuring its new “Thomasville Gallery” line of 2 On July 1, 1996, Thoma sville filed suit in the district court against furniture. JGR alleges that Baker’s displayed only a few JGR to collect approximately $665,000 for furniture and service charges isolated pieces of Thomasville furniture at its grand opening. that JGR owed to Tho masville. JGR subsequently filed suit against According to JGR, Baker’s employees urged its customers to Thoma sville in Ohio state court, alleging that Thomasville’s breach of the view the entire line of Thomasville furniture at Gerald’s, but 1992 Gallery Agreement and fraudulent misrepresentation caused JGR to to purchase the items at Baker’s. Baker’s customers allegedly go out of b usiness. T homasville removed that suit to federal court and filed a motion for summary judgment on all of JGR’s claims. On were handed cards that stated: “Go to Gerald’s. Bring back September 7, 1999, the district court granted Thomasville’s motion for a price and we’ll beat it by five percent.” summary judgment in its entirety. JG R then filed a motion for reconsideration, arguing that the district court had misinterpreted the The day after the Baker’s grand opening, in light of JGR’s nature of its claim for breach of the 1992 Gallery Agreement. The district mounting financial problems and debts, Thomasville placed court denied the motion and JGR appealed. On appeal, this Court JGR’s credit on hold and refused to process or ship any orders reversed and remanded the case for further pro ceed ings with respect to that claim. This appeal relates solely to the proceedings on remand from Gerald’s until JGR sent full payment for those orders. concerning that breach of contract claim. Nos. 02-3640/3731 JGR, Inc. v. Thomasville 7 8 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

was properly the subject of expert testimony, not lay opinion Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999); Barnes testimony, but that he was not qualified to give expert v. Owens-Corning Fiberglass Corp., 201 F.3d 815, 822 (6th testimony. The district court denied Thomasville’s motion, Cir. 2000). Thomasville argues that the district court abused and Gornik proceeded to testify about projections that he had its discretion in permitting Gornik to testify as a lay witness. prepared showing what JGR’s net income would have been in JGR, on the other hand, argues that the district court in fact each year from 1991 through 2005 and what the net worth and permitted Gornik to testify as an expert witness, not a lay value of the business would have been at the end of each of witness, and that although no formal hearing was conducted those years. pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), the district court nevertheless properly The jury determined that Thomasville had, in fact, breached determined that he was qualified to give expert testimony. the 1992 Gallery Agreement and that JGR was entitled to a damages award of $0 for lost profits and $1,500,000 for loss The first issue that we must resolve is whether the district of business value. Thomasville subsequently filed a Rule 50 court permitted Gornik to testify as a lay witness or as an motion for judgment as a matter of law, arguing that the jury expert witness. Fortunately, the record is replete with explicit verdict had no basis for an award of loss of business value. statements by the district court indicating that Gornik was a The district court denied the motion. JGR filed a motion for lay witness and was permitted to testify as such. For pre-judgment interest pursuant to Ohio Revised Code section example, in a colloquy with counsel regarding Thomasville’s 1343.03(A). While the district court initially granted the motion to exclude Gornik’s testimony, the court reasoned: motion and awarded pre-judgment interest at the rate of “But I don’t remember having Daubert extended to a CPA 3.73%, Thomasville filed a motion for reconsideration of that who basically is, in this case, a factual witness. He does their award, which the district court granted. On reconsideration, books.”3 The following morning, after conducting additional the district court changed its original ruling and declined to research, the district court confirmed that Gornik would not award any pre-judgment interest. Judgment was entered for be characterized as an expert witness and, therefore, “there is JGR in the amount of $1,500,000. Thomasville appealed the no Daubert analysis to be done.” Moreover, the district court district court’s $1,500,000 judgment in favor of JGR, and explicitly stated: “I’m glad nobody is asking me to call this JGR cross-appealed the denial of its motion for pre-judgment man an expert . . . I wouldn’t want to have a Daubert hearing interest. on his methodologies.” II. ANALYSIS A. Testimony of James Gornik 3 The district court’s apparent assumption that Gornik was a “factual The primary issue in this case concerns the admissibility of witness” who “does [JGR ’s] books” is false. In fact, Gornik was never an testimony by JGR witness James Gornik, a certified public accountant for JGR and never did its books. His first experience with accountant and lawyer who testified about the amount of lost JGR was in March 1999, when he was contacted by JGR’s trial counsel profits and loss of business value that JGR allegedly suffered for the purpose of “putting down on paper what the financial statements as a result of Thomasville’s breach of contract. We review a of Gerald’s Furniture would have looked like had the Thomasville support district court’s evidentiary rulings for abuse of discretion. to the business continued and had the owners been able to carry through on how they planned to operate the business.” Nos. 02-3640/3731 JGR, Inc. v. Thomasville 9 10 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

Thus, the record unequivocally indicates that the district The Advisory Committee Notes for the 2000 Amendments court permitted Gornik to testify as a lay witness, not an further explain that: expert witness, and that no inquiry was made as to Gornik’s qualifications to testify as an expert witness. Therefore, the [M]ost courts have permitted the owner or officer of a question to which we now turn is whether the district court business to testify to the value or projected profits of the abused its discretion in permitting Gornik to testify as a lay business, without the necessity of qualifying the witness witness. See United States v. Anderskow, 88 F.3d 245, 249 as an accountant, appraiser, or similar expert. Such (3d Cir. 1996) (“we review the admission of . . . opinion opinion testimony is admitted not because of experience, testimony under Rule 701 for abuse of discretion”); Doddy v. training or specialized knowledge within the realm of an Oxy USA, Inc., 101 F.3d 448, 459 (5th Cir. 1996) (admission expert, but because of the particularized knowledge that of lay testimony under Rule 701 is reviewed for abuse of the witness has by virtue of his or her position in the discretion). business. The amendment does not purport to change this analysis. A lay witness – i.e., one who “is not testifying as an expert” – may only testify as to: Id. (emphasis added) (citation omitted).

opinions or inferences which are (a) rationally based on The explanation set forth in the Advisory Committee Notes the perception of the witness, (b) helpful to a clear is reflected in the recent Fifth Circuit case of Dijo, Inc. v. understanding of the witness’ testimony or the Hilton Hotels Corp., which is strikingly similar to the case determination of a fact in issue, and (c) not based on sub judice. In Dijo, the Fifth Circuit held that the district scientific, technical, or other specialized knowledge court abused its discretion in permitting a “a financial within the scope of Rule 702. consultant” to testify as a lay witness regarding the plaintiff company’s lost profits. 351 F.3d 679, 685-87 (5th Cir. 2003). FED . R. EVID . 701. Subsection (c) was added to this rule in Although the witness was the plaintiff’s “primary contact” at 2000 in order to “eliminate the risk that the reliability a commercial lending facility with which the plaintiff had a requirements set forth in Rule 702 will be evaded through the business relationship, he had not served as an owner or officer simple expedient of proffering an expert in lay witness of the plaintiff company. Id. at 685. Additionally, the clothing.” FED . R. EVID . 701, Advisory Committee Notes for witness’s “opinion . . . was based on preliminary income the 2000 Amendments.4 figures and other information that he had received from [the plaintiff’s founder],” and his “appraisal was not based upon his own independent knowledge or observations.” Id. at 686. 4 Rule 70 2 provides:

If scientific, technical, or other specialized kno wledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness q ualified as an expert b y know ledge , skill, reliable principles and methods, and (3) the witness has applied experience, training, or education, may testify thereto in the the principles and method s reliably to the facts of the ca se. form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimo ny is the product of F ED . R. E VID . 702 . Nos. 02-3640/3731 JGR, Inc. v. Thomasville 11 12 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

In considering whether the witness was properly permitted Moreover, the improper admission of Gornik’s testimony to give lay opinion testimony concerning lost profits, the Fifth affected Thomasville’s substantial rights. See id. at 687. For Circuit reasoned: whatever reason, Gornik was the only witness called by either party to testify as to the issue of damages, and – although he It is telling that DIJO responds . . . not with evidence of was subject to cross-examination – Gornik’s testimony about [the witness]’s involvement with [the plaintiff] or the the amount of JGR’s damages was unchallenged by any other Project, but only emphasizing [his] substantial business witness. experience. . . Such generic industry experience does not pass Rule 701 scrutiny. [The plaintiff] never attempted For these reasons, we hold that the improper admission of to qualify [the witness] as an expert; and a lay witness Gornik’s lay opinion testimony requires vacature of the jury’s who was never employed by or directly involved in a damage award and remand for a new trial solely on the issue business is unlikely to have the type of first-hand of damages. See id. at 687. In light of this holding, we need knowledge necessary to provide reliable forecasts of not consider Thomasville’s other arguments concerning the future lost profits. The further removed a layman is from damages award or JGR’s cross-appeal regarding the denial of a company’s day-to-day operations, the less likely it is pre-judgment interest. We must, however, consider two that his opinion testimony will be admissible under Rule additional arguments that Thomasville has raised. 701. B. Evidence of Alleged Oral Contract Id. Thus, in light of the witness’s lack of “the requisite first- hand, personal knowledge” of the company about which he Thomasville’s remaining two arguments concern the testified, the Fifth Circuit held that the district court abused its admission of evidence about an alleged oral contract between discretion in permitting the witness to give lay opinion JGR and Thomasville. JGR had previously alleged that testimony under Rule 701. Id. at 686-87. Thomasville orally promised JGR that it would not sell Thomasville furniture to Baker’s. This alleged oral promise The same is true in this case. Like the witness in Dijo, was the subject of a prior breach of contract claim that is not Gornik has never been an owner, officer or director of JGR. at issue here. Nevertheless, the district court permitted Additionally, the information upon which he relied in making Yosowitz to mention this alleged oral promise in his trial his calculations of lost profits and loss of business value came testimony, over Thomasville’s objection. Thomasville later primarily from Yosowitz, and Gornik admitted that he did not submitted proposed jury interrogatories that it claimed were independently verify much of that information.5 Therefore, necessary to ensure that the jury did not focus upon the Gornik had no basis upon which to offer lay opinion testimony concerning the alleged oral contract, but the district testimony about JGR’s lost profits or loss of business value, court declined to submit the interrogatories to the jury. and the district court abused its discretion in admitting that Thomasville argues that the admission of Yosowitz’s testimony. testimony about the alleged oral contract was irrelevant under Rule 401 and unfairly prejudicial under Rule 403, and that the district court abused its discretion in refusing to submit 5 Thomasville’s proposed interrogatories to the jury. Go rnik testified: “Our role was not to verify a whole lot of things . . . I only verified them against my own e xperience.” Nos. 02-3640/3731 JGR, Inc. v. Thomasville 13 14 JGR, Inc. v. Thomasville Nos. 02-3640/3731 Furniture Industries, Inc. Furniture Industries, Inc.

The district court recognized that the oral promises at issue imposed on JGR.” This instruction – particularly in were “not part of the [1992 Gallery Agreement],” but combination with the court’s other jury instructions – was admitted some evidence of the alleged oral contract as proper and served the purposes that Thomasville’s proposed “background testimony regarding the relationship between interrogatories were intended to serve. JGR and Thomasville Furniture prior to the 1992 agreement.” The district court cautioned JGR’s counsel not to “dwell” on III. CONCLUSION the evidence and explicitly instructed the jury that: For the foregoing reasons, we AFFIRM the district court’s the sole issue in this case is whether Thomasville judgment insofar as it reflects the jury’s verdict as to liability, breached the 1992 agreement. Should you consider but we VACATE the jury’s damages award and REMAND evidence regarding written or oral statements or acts of for a new trial solely on the issue of damages. JGR, Thomasville Furniture, or other parties prior to the 1992 agreement, consider it only to the extent that it helps you understand the intentions of JGR and Thomasville Furniture with regard to that 1992 agreement. Based upon our thorough review of the record, we conclude that the district court committed no abuse of discretion in admitting some evidence relating to the alleged oral contract for the limited purpose of background information, particularly in light of its instruction to the jury, which we must presume was followed. We also conclude that the district court did not abuse its discretion in declining to submit Thomasville’s proposed interrogatories to the jury. Federal Rule of Civil Procedure 49(b) permits a trial court to submit interrogatories to a jury on issues of fact that are necessary for a verdict, but the rule does not require the court to do so. It is well established that it “is in the [trial] court’s discretion whether to submit written interrogatories in connection with a general verdict.” Portage II v. Bryant Petroleum Corp., 899 F.2d 1514, 1520 (6th Cir. 1990). In this case, the district court instructed the jury to determine whether “Thomasville Furniture breached their 1992 agreement by breaching a representation, or understanding, that any new Thomasville dealer would be held to the same square footage requirements that were being