Project Boat Holdings, LLC v. Bass Pro Group, LLC

• Court: Court of Chancery of Delaware
• Decided: August 10, 2018
• Docket: CA 12606-VCS
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE

417 S. State Street JOSEPH R. SLIGHTS III Dover, Delaware 19901 VICE CHANCELLOR Telephone: (302) 739-4397 Facsimile: (302) 739-6179

Date Submitted: July 30, 2018 Date Decided: August 10, 2018

John A. Sensing, Esquire S. Mark Hurd, Esquire Potter Anderson & Corroon LLP Richard Li, Esquire 1313 North Market Street Morris, Nichols, Arsht & Tunnell LLP Wilmington, DE 19801 1201 North Market Street Wilmington, DE 19801

Re: Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS

Dear Counsel:

This letter opinion resolves Plaintiff’s Motion to Strike Certain Trial

Testimony of two expert witnesses, Robert Taylor and Terry Orr (the “Motion”).

The parties’ dispute arises out of Project Boat Holdings, LLC’s (“Project

Boat”) sale of boat manufacturer PBH Marine Holdings, LLC to Bass Pro Group,

LLC (“Bass Pro”) in late 2014. Project Boat initiated this action on July 29, 2016,

seeking a declaration that Bass Pro is not entitled to indemnification for certain

alleged breaches of the operative transaction document, the Membership Interest

Purchase Agreement (the “MIPA”), and an order requiring Bass Pro to issue joint Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 2

instructions to an escrow agent to release certain indemnification escrow funds as

required under the MIPA. On October 5, 2016, Bass Pro filed an answer and

counterclaim, seeking a declaration that Project Boat breached the MIPA, breached

the covenant of good faith and fair dealing and committed fraud in connection with

its representations regarding a line of boats that Project Boat sold to Bass Pro—the

2014 Triton 21 TrX bass boats.1

The Court held a four-day trial in June of this year. At trial, Bass Pro

presented expert testimony from Robert Taylor and Terry Orr. Project Boat objected

to certain aspects of both experts’ testimony at trial, and the Court directed that the

parties address the objections more thoroughly in a post-trial motion to strike.

In its Motion, Project Boat seeks an order striking designated portions of both

experts’ trial testimony because: (1) Taylor presented certain opinions at trial that

were not previously disclosed to Project Boat in Taylor’s expert report or otherwise;

and (2) Orr relied completely on Taylor’s newly minted opinions in forming his own

opinion. Specifically, Project Boat posits that Taylor did not—prior to trial—

1 The Court dismissed Bass Pro’s breach of the covenant of good faith and fair dealing counterclaim and dismissed in part Bass Pro’s fraud-based counterclaims by order dated July 26, 2017. D.I. 64. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 3

disclose his opinions regarding (1) the adequacy of testing for the 2014 Triton 21

TrX that was completed prior to Project Boat’s decision to manufacture the boat with

a different lamination schedule; and (2) Project Boat’s knowledge as of June 2014

that attempted repairs of the hull failures would not fix the delamination problem.2

In response, Bass Pro maintains that Taylor’s opinions were not new.

Specifically, it points to its Expert Disclosure, dated October 20, 2017, in which it

stated that Taylor’s testimony, among other matters, would address (1) “[w]hether

any repair(s) short of replacing the hulls . . . would have prevented the hulls from

cracking and/or delaminating, the nature of such repair(s), and the impacts such

repair(s) would have had on the boats”; (2) “[w]hat information would support a

conclusion that extensive repairs or replacement was going to be necessary to

prevent the hulls from cracking and/or delaminating due to the hull mismatch”; and

(3) “[t]he results of all testing performed on or related to the Triton 21 TrX boats at

issue in this litigation . . . .”3 Bass Pro further contends, “Mr. Taylor disclosed in his

2 Pl. Project Boat Hldgs., LLC’s Mot. to Strike Certain Trial Testimony of Robert Taylor and Terry Orr (“Pl.’s Opening Br.”) 2. 3 Bass Pro Gp., LLC’s Resp. to Mot. to Strike Certain Trial Testimony of Robert Taylor and Terry Orr (“Def.’s Response”), Ex. B. ¶¶ 2(g)–(h). Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 4

report his opinion on when information became available that the defective hulls

likely would need to be replaced; referenced and attached his notes on the . . . testing

as part of his analysis in his expert report; testified in his deposition that the . . .

testing did not change his opinion; and was responding to Mr. Hopper’s criticism of

[Taylor’s] opinion when [Taylor] testified at trial regarding the distinctions between

different types of testing.”4

Under Rule 26(b)(4)(A)(i), “[a] party may . . . require any other party to

identify each person whom the other party expects to call as an expert witness at

trial, to state the subject matter on which the expert is expected to testify, and to state

the substance of the facts and opinions to which the expert is expected to testify and

a summary of the grounds for each opinion.” Rule 26(e)(1)(B) provides that once a

response to expert discovery is given, the responding party must thereafter

“seasonably supplement [its] response with respect to any question directly

addressed to . . . the identity of each person expected to be called as an expert witness

at trial, the subject matter on which the person is expected to testify, and the

4 Def.’s Response 2. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 5

substance of the person’s testimony.” “The purpose of identifying and providing

expert reports is to provide the opposing side with notice of the basis for the opinion,

and to allow them to respond in kind.”5

“[T]he requirement of a party to comply with discovery directed to

identification of expert witnesses and disclosure of the substance of their expected

opinion is a pre-condition to the admissibility of expert testimony at trial.”6

Accordingly, when a proffering party has failed to provide adequate disclosure of

his expert’s opinions to his opponent prior to trial, the court may exclude the

testimony at trial, or receive it subject to objection and a later motion to strike the

testimony from the trial record.7

With regard to Taylor’s testimony that Project Boat should have known by

June 2014 that repairs would be inadequate, I find that Bass Pro’s disclosures gave

5 Crookshank v. Bayer Healthcare Pharm., 2009 WL 1622828, at *3 (Del. Super. Ct. May 22, 2009) (internal quotation and citation omitted). 6 Bush v. HMO of Del., Inc., 702 A.2d 921, 923 (Del. 1997) (citing Stafford v. Sears, Roebuck & Co., 413 A.2d 238 (Del. 1980)). 7 Cf. Russell v. K-Mart Corp., 761 A.2d 1, 3–4 (Del. 2000) (upholding trial court’s restriction of expert testimony where certain opinions were not disclosed pre-trial). Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 6

adequate pre-trial notice of that opinion to Project Boat and, therefore, there is no

basis to strike that opinion. Under Rule 26, “[a] party is only required to ‘state the

substance of the facts and opinion to which the expert is expected to testify and a

summary of the grounds for each opinion.’” 8 He need not provide every nuance or

detail of the expert’s opinion in a pretrial disclosure (whether by report or

interrogatory response), particularly given that our rules of procedure (and the

Court’s case management order in this case) allow for expert depositions.9

In his initial report, Taylor explained that Project Boat learned in June 2014

that the 2014 Triton 21 TrX was missing a lamination layer and that “[t]he

obviousness of the result of this mismatch would lead any reasonably competent

boat designer to realize that these boats . . . likely would have to be replaced.”10

Taylor further stated, “[a]s the entire hull was missing one to two layers of woven

roving, and it was impossible to access the entirety of the interior surface of the hull,

8 Beard Research, Inc. v. Kates, 8 A.3d 573, 591 (Del. Ch.) (quoting Ct. Ch. R. 26(b)(4)(A)(i)), aff’d sub nom. ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010). 9 See id. See also D.I. 88 (Modified Second Stipulated Scheduling Order) ¶ 1(f). 10 Transmittal Aff. of John A. Sensing (“Sensing Aff.”), Ex. G, at 3–4. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 7

it was evident that hull replacement was the only option on the table.”11 In his

rebuttal report, Taylor opined, “[o]nce [Project Boat] identified that [the 2014]

Triton 21 TrX boats were missing a laminate layer, it had enough information to

know that the hulls of those boats likely would fail through reasonably foreseeable

use, would likely need to be replaced, and likely could not be repaired through

patching or other means short of replacing the hulls. A hull replacement program

would have been the correct decision with available information in the June/July

2014 timeframe.”12

These disclosures identify the substance of Taylor’s opinions and summarize

the grounds for his conclusion. Project Boat then explored the contours of Taylor’s

opinion during his deposition in January 2018.13 After reviewing these pre-trial

disclosures of this aspect of Taylor’s opinion, I am satisfied that his trial testimony

on this subject was entirely proper and need not be stricken.

11 Sensing Aff., Ex. G, at 21. 12 Sensing Aff., Ex. L, at 2. 13 See, e.g., Transmittal Aff. of Richard Li in Resp. to Pl. Project Boat Hldgs., LLC’s Mot. to Strike Certain Trial Testimony of Robert Taylor and Terry Orr (“Li Aff.”), Ex. F (Taylor Dep.), at 119, 127–28. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 8

Taylor’s opinion regarding the adequacy of testing, however, must abide a

different fate. Neither of Taylor’s reports gave notice to Project Boat that Taylor

would be discussing the adequacy of Project Boat’s performance testing and neither

disclosed the factual basis for any opinion Taylor might later offer on this topic.

Bass Pro’s Expert Disclosure likewise did not give notice to Project Boat that it

should prepare to respond to a challenge regarding the adequacy of its performance

testing. While the adequacy of testing might be relevant to “the question of whether

information was available in June 2014 that the hulls would likely need to be

replaced,” as asserted by Bass Pro,14 whether additional hours of performance testing

were necessary or whether testing was otherwise properly performed “is clearly a

separate and distinct question.”15

“It is not reasonable to require Defendants’ counsel to go on a wild goose

chase with Plaintiff’s experts or to depose Plaintiff’s experts without the benefit of

having the opinions and the . . . scientific reasoning for those opinions.”16 Taylor’s

14 Def.’s Response 12. 15 Stone v. Stant, 2008 WL 4482707, at *1 (Del. Ch. Sept. 29, 2008). 16 Crookshank, 2009 WL 1622828, at *3 (internal quotation and citation omitted). Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 9

opinion should have been supplemented pursuant to Rule 26(e)(1)(B) if he intended

to address the adequacy of testing at trial. Because it was not, his trial opinion on

this subject must be stricken.

Finally, the Motion argues that Orr’s testimony (relating to the extent to which

Project Boat’s representations in the MIPA complied with GAAP) should be stricken

because his “entire opinion is based on the opinions of Mr. Taylor, most of which

should be stricken because they are not found in Mr. Taylor’s initial report.”17

To start, I have already determined that one aspect of Taylor’s testimony—namely,

when Project Boat became aware that repairs would be inadequate—was adequately

disclosed and will not be stricken. To the extent Orr referred to or relied upon that

part of Taylor’s testimony, his testimony is not objectionable on that ground.

Moreover, and more to the point, contrary to Project Boat’s assertion, I do not

find that Orr “abandoned his . . . assumption” in favor of Taylor’s testimony as the

basis for his opinion.18 In preparing his initial report, Orr was asked to assume that

17 Pl.’s Opening Br. 13. 18 See Pl. Project Boat Hldgs., LLC’s Reply Br. in Further Supp. of Its Mot. to Strike Certain Trial Testimony of Robert Taylor and Terry Orr (“Pl.’s Reply Br.”) 7–8. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 10

replacement (as opposed to some lesser repair) was the appropriate remedy for a hull

“mismatch” in order to determine the accuracy of Project Boat’s MIPA

representations.19 In his rebuttal report, Orr explained that Taylor’s initial report,

along with certain deposition testimony and documents in the record, were

“consistent with [the] assumption” he was asked by counsel to make.20 And, at trial,

Orr was asked: “Are you testifying to the Court based on [your initial] assumption

or are you relying upon other information?”21 Orr replied: “Today, I’m relying on

Mr. Taylor’s report, his rebuttal report, his deposition, and his trial testimony.” 22

When taken out of context, Orr’s answer to Plaintiff’s counsel’s questioning

at trial may imply that Orr “abandoned his report (and the assumption contained

therein).”23 When considered in conjunction with Orr’s rebuttal report, however, his

19 See Transmittal Aff. of John A. Sensing in Supp. of Pl. Project Boat Hldgs., LLC’s Reply Br. in Further Supp. of Its Mot. to Strike Certain Trial Testimony of Robert Taylor and Terry Orr (“Sensing July Aff.”), Ex. N (Orr Dep.), at 33. 20 Li Aff., Ex. N ¶ 7. 21 Sensing Aff., Ex. A (Trial Tr.), at 979:13–15. 22 Sensing Aff., Ex. A (Trial Tr.), at 979:16–18. 23 Pl.’s Reply Br. 7. Project Boat Holdings, LLC v. Bass Pro Group, LLC C.A. No. 12606-VCS August 10, 2018 Page 11

trial testimony confirms that he simply determined that his initial assumption had

been confirmed by Taylor’s reports, deposition and trial testimony. Accordingly,

the initial assumption did not change, and his opinion remained the same.

Orr’s testimony will not be stricken.

For the foregoing reasons, the Motion is GRANTED in part and DENIED in

part.

IT IS SO ORDERED.

Very truly yours,

/s/ Joseph R. Slights III