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Jesa Enterprises Ltd. v. Thermoflex Corp.

United States District Court, E.D. Michigan, Southern Division

October 17, 2017

JESA ENTERPRISES LTD, Plaintiff,
v.
THERMOFLEX CORPORATION, Defendant, and THERMOFLEX CORPORATION, Third-Party Plaintiff,
v.
SILAGY MURDOCH GROUP, INC., SILAGY MURDOCH GROUP LLC, and JESA ENTERPRISES LTD, Third-Party Defendants.

          CORRECTED OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO STRIKE TESTIMONY OF PROPOSED EXPERT WITNESSES

          HONORABLE DAVID M. LAWSON UNITED STATES DISTRICT JUDGE.

         In this action by a manufacturer's representative for contract damages, including post-termination commissions, each side has filed motions challenging the admissibility of the other side's expert witnesses. Each side's expert intends to offer opinions (which, predictably, vary) on the custom and practice in the automotive industry for paying commissions to the representative for the life of the part sold to original equipment manufacturers. Two of the experts (one for each side) also intend to offer an opinion on who should prevail in this case. The respective reports (including a supplemental report from the plaintiff's expert) and deposition testimony show that the expert witnesses satisfy Evidence Rule 702 on their explanations of industry custom and practice. However, neither side has furnished a sufficient basis to allow the witnesses to tell the jury whom they think should win. Therefore, the Court will grant the respective motions in part and deny them in part.

         I.

         Plaintiff Jesa Enterprises Ltd. acted as a sales representative for defendant Thermoflex Corporation by soliciting new customers to purchase the products Thermoflex manufactured - floor mats, bed liners, and the like - for use in cars and trucks. The parties agree that an oral agreement governed their relationship, but differ as to its terms. The central issue in this case is whether the plaintiff is entitled to post-termination commissions for the life of the parts on sales Jesa procured for Thermoflex before the parties terminated their relationship. Jesa listed Terrence A. Barr as a proposed expert witness to testify on the practices and customs in the automotive parts industry related to life-of-the-part agreements. Thermoflex disclosed two rebuttal expert witnesses, Donald E. Rose and Roger E. Rickey.

         The plaintiff's proposed expert submitted a supplemental report in February 2017. The defendant filed a motion challenging the statements in that supplemental report, raising the same arguments put forth in the earlier motion. The Court heard oral argument on the first round of motions on May 16, 2017. But because the defendant's second motion raises similar arguments, and because the motion papers adequately set forth the relevant facts and law, oral argument will not aid in the disposition of that later motion. Therefore, it is ORDERED that the motion be decided on the papers submitted. See E.D. Mich. LR 7.1(f)(2).

         A.

         Barr currently runs the family manufacturer's representative business, which was started several years ago by his father. The business specializes in the automotive market, selling its clients' components, assemblies, and systems to automakers (OEMs) and their Tier I, II, and III suppliers. Barr has a bachelors degree in finance and a law degree. He practiced law with a firm in Detroit for five years, then went into his father's business as the director of marketing and administration in 1998, and has served as its president since 2000.

         Barr submitted a report under Federal Rule of Civil Procedure 26(a)(2)(B) in which he gave a thorough explanation of life-of-the-part agreements in the automotive parts market. He wrote that parts manufacturers seeking business have the option to use an in-house sales force or contract with a third-party representative, like Jesa (or his company), depending on their tolerance for cost and risk. According to Barr, there is a long selling cycle inherent in the automotive parts market. He says it is not uncommon for sales representatives to work for one to three years before procuring a business award. And it may be another one to three years before a manufacturer starts production and delivery of the part, at which time the part producer gets paid and commissions become due. Sales representatives bear the risk of no business awards (and therefore no compensation) in exchange for commissions paid over the life of the part once production of the part commences years down the road. Manufacturers can avoid incurring the up-front costs of an in-house sales force by using an outside representative.

         Barr's review of the facts of the case was limited to the first amended complaint and the defendant's answer. Drawing on these documents and his experience, he proposes to testify to these conclusions:

In the present case, I have assumed an oral agreement for a commission between the parties and assumed no oral or written agreement specifically limiting commissions in a termination. I have also assumed that the Plaintiff's sales activity is within the automotive industry.
It is well known and understood in the automotive industry as a practical matter that unless otherwise specifically agreed, “life of the part” is included in sales representative agreements, oral or otherwise.
Based on the assumptions above, my experience and knowledge in the industry, and my review of the documents listed above, it is my opinion that Plaintiff is entitled to pre and post-termination commission for the life of the part on the business that he procured for Thermoflex prior to the date the agreement was terminated.

Def.'s Mot. [dkt. #61], Ex. A, Expert Report of Terrence A. Barr dated Oct. 31, 2016 at 5.

         Barr furnished a supplemental report on February 27, 2017, which the defendant attacked in a later-filed motion, raising substantially the same arguments. In that supplemental report, Barr wrote:

Post-termination engineering changes and post-termination activities performed by the principal do not alter the responsibility of the principal to pay life of the part commissions to the sales representative.
[I]t is typically the expectation of the automotive supplier and the automotive customer that the part/product will be supplied for the requirements of the customer through the end of the life of any project(s)/program(s) that utilize such part/product.

Def.'s Mot. [dkt. #95], Ex. E, Supplemental Report of Terrence A. Barr dated Feb. 27, 2017 at 1.

         Thermoflex did not quarrel with Barr's qualifications on the subject of industry custom and practice, at least not in its motion. It did challenge his qualifications in its reply brief. But arguments raised for the first time in a reply brief are not favored. Balsley v. LFP, Inc., 691 F.3d 747, 773 (6th Cir. 2012) (“Issues raised for the first time in a reply brief are not properly before this court” (quoting United States v. Perkins, 994 F.2d 1184, 1191 (6th Cir. 1993))). Moreover, an expert witness may be “qualified . . . [by] experience . . . [to] testify in the form of an opinion or otherwise, ” Fed.R.Evid. 702, and Barr is well qualified on that basis to offer testimony on the custom and practice of formulating and executing sales representative agreements in the automotive industry. He has worked in that industry in a manufacturer's representative agency for almost two decades and has negotiated and reviewed dozens of agreements.

         The defendant's main argument is that Barr's opinions are neither relevant nor reliable, because he relied only on the pleadings in this case and conversations with an unknown number of sales representatives and family friends at unknown times; he did not draft, review, or rely upon any industry surveys, statistics, or industry data to support his opinion; he does not know how many suppliers he has spoken with regarding life-of-the-part agreements; and he does not know how many times in his career that post-termination commissions were imposed on a manufacturer in the absence of an oral or written agreement.

         Expert testimony is governed by Evidence Rule 702, which was modified in December 2000 to reflect the Supreme Court's emphasis in Daubert v. Merrell Dow Pharmaceuticals., Inc., 509 U.S. 579 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999), on the trial court's gate-keeping obligation to conduct a preliminary assessment of relevance and reliability whenever a witness testifies to an opinion based on specialized knowledge. Rule 702 states:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of ...

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