United States District Court, N.D. Illinois
January 11, 2004.
VIGORTONE AG PRODUCTS, INC., formerly known as Provimi Acquisition Corporation, Plaintiff,
PM AG PRODUCTS, INC., Defendant
The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Vigor-tone Ag Products, Inc. (hereinafter referred to as
"Provimi") filed this suit against PM Ag Products, Inc. (hereinafter, "PM
Ag") in 1999, asserting, among other things, claims of fraud and breach
of contract in connection with sale of vigortone, Inc., a former
subsidiary of PM Ag, Following a trial before this Court, which resulted
in a jury verdict against PM Ag for fraud and breach of contract, PM Ag
appealed from the judgment against it. The Seventh Circuit reversed the
fraud verdict, holding that the jury's finding of justifiable reliance
lacked sufficient evidentiary basis, and remanded the case for a new
trial on the breach of contract claim. Presently before the Court is
Provimi's Daubert Motion to Exclude Testimony of Mark J.
Hosfield Concerning Provimi's Alleged Mismanagement of the Pig Purchase
Contracts and Concerning Hedging.
I. LEGAL STANDARD
Federal Rule of Evidence 702 provides that if "specialized knowledge
will assist the trier of fact to understand the evidence or to determine
a fact in issue, a witness qualified as an expert by knowledge, skill,
experience, training, or education, may" offer an opinion on the relevant
issues. FED. R. EVID. 702. The witness may only offer such an opinion if
the proffered testimony is based upon sufficient facts or data and is the
product of reliable principles and methods that have been reliably
applied to the facts of the case. Id. It is the district court's
gate keeping obligation to ensure that expert testimony is not only
relevant, but reliable. Kumho Tire Co, v. Carmichael,
526 U.S. 137, 147 (1999), In performing that function, the Court may
consider several factors, including whether the expert's technique has been
tested, subjected to peer review and publication, or accepted within the
"relevant scientific community." Daubert v. Merrell Dow Pharm,
Inc., 509 U.S. 579, 592-94 (1993).
Under Rule 702, a witness is "qualified as an expert by, knowledge,
skill, experience, training, or education, . . . " FED. R. EVTD. 702.
"Whether a witness is qualified as an expert can only be determined by
comparing the area in which the witness has superior knowledge, skill,
experience, or education with the subject matter of the witness's
testimony." Carroll v, Otis Elevator Co., 896 F.2d 210, 212
(7th Cir. 1990). It follows that
if a witness lacks the requisite qualifications, his testimony
cannot assist, the trier of fact and such testimony should be barred.
See Ancho v. Pentek Corp., 157 F.3d 512, 516-18 (7th Cir. 1998);
Israel Travel Advisory Service, Inc. v. Israel Identity Tours,
Inc., 1993 WL 3873465, *2 (N.D. Ill. 1993).
A. Mr. Hosfield's Testimony on Alleged "Mismanagement"
Provimi argues that PM Ag's damages expert, Mr. Hosfield, a trained
accountant and damages expert, should be barred from testifying on the
issues of (1) Provimi's alleged mismanagement of the pig purchase
contracts at issue here and (2) the use of commodity futures contracts to
hedge the market risks associated with the pig contracts. Specifically,
Provimi argues that Mr. Hosfield is unqualified to testify on the issue
of Provimi's alleged mismanagement because he has no knowledge, skill,
experience, training, or education pertaining to the business of buying,
raising, and selling pigs. See Pl, Mot. at 6-7. Provimi also
notes that Mr. Hosfield has never even taken an agriculture course.
See id. Finally, Provimi argues that Mr. Hosfield has not done
any analyses of Provimi's business decisions concerning the pig purchase
contracts, and thus possesses no expertise in this area. See id.
The force of Provimi's arguments is strengthened by PM Ag's concession
that "Mr. Hosfield is not an expert in raising pigs,"
Def. Resp. at 8, PM Ag asserts instead that, contrary to Provimi's
claims, Mr. Hosfield did not (and apparently will not) "opine about the
reasonableness of any of Pravimi's business decisions . . ." Id.
at 6. Although PM Ag acknowledges that Mr. Hosfield has, at a minimum,
used the words "mismanagement" in his testimony and expert report, it
contends that these statements "relate  solely to Mr. Hosfield's
criticism of Mr. Charnetzki's [Plaintiff's damages expert] valuation
methodology" and therefore should not be evaluated under Daubert.
Id. at 5, 8.
PM Ag's seemingly contradictory position relies on the fact that
Provimi has proffered two experts who have calculated damages in
different ways. One expert, Mr. Charnetzki, calculated out of
pocket losses from the closing date of the sale until September
30, 2003, and arrived at damages of approximately $16 million.
See Def. Resp. at 5-6, In contrast, Provimi's other expert, Dr.
Hayenga, calculated damages by predicting the expected losses of the pig
contracts as of the closing date, and arrived at a figure of
approximately $9,65 million. See id. Claiming that. Mr.
Charnetzki's method necessarily considers Provimi's management choices
over time, which include the potential mismanagement of the pig
contracts, Mr. Hosfield concludes that the disparity of approximately $7
million in the damage figures calculated by Provimi's experts "must
include the losses suffered by Provimi through its mismanagement of the
business and particularly the pig
purchase agreement." Id. at 5 (emphasis in original), c
Hosfield Dep. at 7-8, Thus, PM Ag argues that Mr. Hosfield's testimony
regarding "mismanagement" is not only an "inescapable inference," but is
also derived exclusively from Mr. Hosfield's unchallenged expertise in
accounting and damages. See id. at G. As a result, PM Ag claims
that. Mr. Hosfield's challenged testimony reflects only his well-founded
and therefore admissible criticism of Mr. Charnetzki's
methodology. See id. at 5-8,
The Court finds that Provimi has the better argument here. Mr.
Hosfield's comments pertaining to "mismanagement" go beyond his area of
expertise, which is in accounting and professional damages. FM Ag do not
refute that Mr. Hosfield has virtually no experience in the business of
buying, selling, and raising pigs. As a result, he is simply unqualified
to offer any opinion on Provimi's purported "mismanagement" of the pig
contracts. See Ancho, 157 F.3d at 516-18; Israel Travel
Advisory Service, Inc. 1993 WL 38734 at *2.
In sum, Mr. Hosfield's qualifications cannot support his comments on
Provimi's alleged "mismanagement," Mr. Hosfield does not need to address
purported "mismanagement" to analyze and comment upon Mr. Charnetzki's
methodology. In fact, Mr. Charnetzki's expert report is devoid of
commentary on the competence of Provimi's management and so
should be the case with Mr. Hosfield's testimony.
B. Mr. Hosfield's Testimony on Hedging
In his expert report, Mr. Hosfield claims that Provimi could have
hedged the market exposure of the pig contracts by "[b]uying contracts to
sell lean hogs live hog at futures prices at June 30, 1998 [which] would
have created a gain that would offset losses generated through the
requirement to sell, feeder or weaner pigs at current market." Hosfield
Rep. at 13. According to Mr. Hosfield, if Provimi "had chosen to hedge
its exposure to the downward movement in prices it could have reduced
much of the exposure to any loss on pig contracts." Id. at 14.
Provimi argues that testimony concerning this hedging strategy as a
viable mitigation option should be barred under Rule 702 and the
principles articulated in Daubert. Specifically, Provimi. argues
that Mr. Hosfield has virtually no knowledge or experience regarding
hedging or trading commodity futures contracts in any industry, much less
the pig industry. See Pl. Mot, at 7. Provimi notes that Mr.
Hosfield has never taken a course in hedging or commodities or devised a
hedging program for any business, aside from a single hedging decision
more than twenty years ago. See id. Moreover, Provimi claims
that Mr. Hosfield's analyses are "replete with basic errors" and that Mr.
Hosfield cannot point to anyone else in the industry who has adopted his
hedging strategy. See id. at 10-11.
PM Ag responds by claiming that it "may seek to introduce testimony
from Mr. Hosfield that it would have been possible to use a cross-hedging
strategy soon after closing to avoid significant claimed damages." Def.
Resp. at 9. PM Ag states that "Mr. Hosfield's opinion is based upon his
own experience with hedging contracts and his study of hedging in
graduate school." Id. PM Ag then states, however, that there is
no need for the Court to engage in an extensive Daubert analysis
because Mr. Hosfield's testimony "will simply meet that of Provimi's lay
witnesses who will testify that Provimi acted reasonably to hedge its
In support of the admissibility of Mr. Hosfield's testimony under
Rule 702 and Daubert, PM Ag cites Tuf Racing Products, Inc. v.
American Suzuki Motor Corp., 223 F.3d 585, 591 (7th Cir. 2000)
(Posner, J.). The facts in. Tuf Racing Products, however, are
readily distinguishable from the present case. There, the defendant
argued that the plaintiff's expert, an accountant, was not qualified to
opine on the calculation of discounted present value of lost future
earnings because he did not have a degree in a particular academic field,
such as economics, statistics or mathematics. See id. The
Seventh Circuit disagreed, holding that Daubert does not require
that an expert have a particular degree in a certain academic field,
provided that the expert has "relevant expertise . . . to offer
responsible opinion testimony." See id. (emphasis added) The
court noted that the "calculation [was] well
within the competence of a C.P.A." Id. Thus, Tuf
Racing Products does not stand for the proposition that an
accountant may testify as to any area in which he has passing
Here, PM Ag does not offer substantial support for its claim that "Mr.
Hosfield has ample experience and expertise" pertaining to commodity
futures contracts and hedging, Def, Resp. at 9. PM Ag appears to base its
conclusion of "expertise" on Mr. Hosfield's "own experience with hedging
contracts." See id., citing Hosfield Dep. at 11-17.
This experience, however, is principally limited to a single hedging
decision made more than twenty years ago. See Hosfield Dep. at
6-8. PM Ag does not contend that Mr. Hosfield has had any regular
experience in commodity futures contracts or hedging, or any other
relevant area, sufficient to provide him with "expertise." Nor does PM Ag
contest Provimi's documentation of numerous "basic" errors in Mr.
Hosfield's report that purportedly show a fundamental lack of knowledge
pertaining to hedging. See Pl. Mot. at 10-12; cf. Def. Resp. at
8-9. PM Ag contends that Mr. Hosfield's "study of hedging in graduate
school" also provides him with "expertise." Def. Resp. at 9, This
experience, however, did not include any courses on commodities or
hedging. See Hosfield Dep. at 17. Finally, Mr. Hosfield admits
and PM Ag does not argue otherwise that he cannot
identify anyone else in the
industry that has used his hedging proposal. See Pl. Mot.
at 11, citing Hosfield Dep. at 328 [sic].*fn1
Accordingly, the Court finds Mr. Hosfield's background and experience
insufficient to provide him with the requisite expertise under
Rule 702 to comment on potential hedging strategies that Provimi could have
enacted. In addition, assuming arguendo that Mr. Hosfield had sufficient
qualifications to provide an opinion, his methodology and analyses are
not the product of reliable principles and methods and do not enjoy
"general acceptance" within a "relevant scientific community."
Daubert, 509 U.S. at 592-94.
For the reasons set forth above. Plaintiffs' motion to bar the trial
testimony of Mark J. Hosfield concerning Provimi's alleged mismanagement
of the pig purchase contracts and concerning hedging is