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VIGORTONE AG PRODUCTS, INC. v. PM AG PRODUCTS

January 11, 2004.

VIGORTONE AG PRODUCTS, INC., formerly known as Provimi Acquisition Corporation, Plaintiff,
v.
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. Page 2

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 Page 3 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).

  II. DISCUSSION

 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," Page 4 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 Page 5 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. Page 6

  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 ...


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