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The Smart Marketing Group, Inc. v. Publications International, Ltd.

United States District Court, Seventh Circuit

May 29, 2013



JOHN W. DARRAH, District Judge.

On February 6, 2009, following a jury trial, Plaintiff, The Smart Marketing Group, Inc. ("SMG"), was awarded a judgment in its favor in the amount of $5, 612, 500.00 against Defendant, Publications International, Ltd. ("PIL"), for breach of contract. PIL appealed the award of damages only, and, on October 8, 2010, the U.S. Court of Appeals for the Seventh Circuit vacated the award and ordered a new trial limited to the damages issue. Smart Mktg. Group, Inc. v. Publ'ns Intl., Ltd., 624 F.3d 824, 833 (7th Cir. 2010).

On remand, the case was assigned to this Court, and the parties were granted leave to conduct new expert discovery. PIL has filed a Motion for Summary Judgment. PIL has also filed a motion to exclude SMG's expert pursuant to Fed.R.Evid. 702 and Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993).


The facts of this case are fully set out in the Seventh Circuit's opinion in Smart Mktg. Group, Inc., 624 F.3d 824. Therefore, only a brief summary of the facts is necessary.

The Underlying Contracts

SMG was formed as a California corporation on March 4, 2003. On the same day, SMG contracted with publisher PIL to sell PIL's Consumer Guide "Approved" program to new car dealers. The Approved program involved selling dealers the right to be designated as a Consumer Guide Approved Dealership and held certain benefits. Id. at 826.

In July 2003, SMG signed a second contract with PIL to sell Consumer Guide "Leads & Listings" subscriptions to new car dealers, which was intended to generate internet leads for car sales. Id. Dealers who enrolled in Leads & Listings agreed to pay fees to receive brand-specific sales leads generated from PIL's website, Each "qualified lead" would include the name and contact information of a consumer who had requested a price quote for a specific new car model and had entered contact information on the website. The parties planned that each dealership would receive an average of sixteen brand-specific leads per month from the website. Id. The parties also decided to put the Approved program on hold and focus on Leads & Listings. Id. at 827.

As of July 25, 2003, SMG was authorized to begin selling Leads & Listings contracts to dealers and, by August 30, had enrolled over 100 dealers. Id. However, by the end of September 2003, PIL had not completed development of software necessary to distribute those leads effectively. PIL asked SMG to limit new contracts to 125 per month, which SMG did. Between July and November, SMG sold 428 Leads & Listings contracts. Id. at 826-27.

On October 24, 2003, the parties entered into a new two-year contract, which gave SMG the right to sell both the Approved and Leads & Listings programs (the "October contract"). The October contract expressly voided the two previous contracts. It also provided a commission schedule and provisions on terminations. Among other things, the October contract provided that commissions due SMG would be reduced to account for dealers' cancellations, credits, unpaid accounts or refunds. However, PIL continued to struggle with developing the software to deliver the promised leads, and, on November 18, 2003, PIL terminated the October contract. Id. at 827.[1]

In January 2004, SMG sued PIL. At trial in 2009, SMG sought damages based on its lost profits, which it asserted were approximately $8.8 million. The jury found that PIL breached the October contract and awarded SMG lost profits of approximately $5.6 million. Id. at 827-29.

PIL appealed the award but not the breach of contract. The Seventh Circuit affirmed the district court's denial of PIL's Rule 50(b) motion for judgment as a matter of law. Id. at 832. The court declined, "after looking at all of the evidence in the record, " to find that PIL was entitled to judgment as a matter of law that damages were not established. Id. at 829. However, the Seventh Circuit ruled that the district court erred when it denied PIL's Rule 59 motion for a new trial or remittitur of damages. The court then held that the damages award "fell so far outside anything the evidence might have supported that the district court abused its discretion in refusing to order a new trial on damages." Id. at 833. The Seventh Circuit vacated the damages award and remanded for a new trial limited to damages. Id. at 834.

SMG's Damages Expert on Remand

After the parties were granted leave to conduct new expert discovery, SMG designated, as its damages expert, David Nolte, a certified public accountant. In his Fed. Rule of Civ. P. 26(a) Report, Nolte estimated that SMG lost $4.7 million in profits it would have earned during the two-year course of the October contract. (Def.'s Mot. to Exclude Expert, Exh. A.) In reaching his estimate, Nolte relied on: 1) the 558 contracts SMG actually sold from March 5, 2003 through November 18, 2003; 2) the pro forma sales projections that SMG presented to PIL during their negotiations of the October contract ...

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