Redcell Corp. v. A.J. Trucco, Inc.

Background

Redcell Corp. and Redcell Systems, LLC sued A.J. Trucco, Inc. and Trucconova, LLC under the Defend Trade Secrets Act and for breach of contract. Redcell alleged that Trucco obtained and used source code for the PLEXUS IMP software after Redcell’s chief software programmer, Jean Paul Arce, stopped working for Redcell and affiliated with Trucco. Redcell sought damages based on alleged unjust enrichment, including profits, cost savings, and increased enterprise value.

The opinion concerns two motions under Federal Rule of Evidence 702, which governs when expert testimony is admissible. Redcell offered J. Christopher Westland as a damages expert. Westland calculated total alleged damages of $14,596,902 using financial information, reconstructed financial statements, adjustments for inflation and business growth, statistical testing, and a net-present-value calculation. Trucco offered Mark S. Gottlieb as a rebuttal expert. Gottlieb criticized Westland’s data, methods, calculations, and qualifications, and estimated that correcting one claimed calculation error would reduce certain damages estimates.

Legal standard

The court explained that it must act as a gatekeeper for expert testimony. Under Rule 702, an expert must be qualified, the opinion must be based on sufficient facts or data, the methods must be reliable, and those methods must be reliably applied to the case. The testimony must also help the fact finder. Problems that affect the weight or credibility of an opinion generally should be addressed through cross-examination and contrary evidence rather than exclusion.

Trucco’s motion to exclude Westland

The court rejected Trucco’s arguments that Westland’s opinions should be excluded because he used reconstructed financial statements, failed to perform a full analysis after receiving additional financial information, made computational errors, failed to account for certain variables, or lacked the proper qualifications. The court found that Trucco had access to the underlying data and Westland’s methods, and that excluding the opinions because Trucco produced some financial information late would improperly benefit Trucco from its own delayed disclosure.

The court treated alleged arithmetic errors and disputes about variables as matters for the fact finder or cross-examination, not automatic grounds for exclusion. It also found Westland qualified based on his Illinois certified-public-accountant license, academic background, publications, and experience in forensic accounting and valuation. The court concluded that Westland’s opinions were generally based on sufficient facts and reliable methods and would assist the jury in assessing damages if Redcell proved Trucco’s liability.

The court did, however, exclude the portion of Westland’s rebuttal report and testimony beginning with the heading “PLEXUS IMP is a very good Software System” and ending with the section titled “Nicola Pacia is correct; a modern business can’t survive without a management computer system like PLEXUS IMP.” The court found that this material offered an improper factual narrative rather than expert damages analysis.

Redcell’s motion to exclude Gottlieb

The court rejected Redcell’s request to exclude Gottlieb’s report and testimony altogether. Gottlieb’s reliance on interviews with Trucco personnel did not require exclusion because he incorporated the interview information into his report. His reliance on work by his staff member David Pratt also was permissible because Gottlieb supervised the analysis, prepared the tables and report, and formulated his own opinions rather than merely repeating an unavailable expert’s conclusions. The court also found Gottlieb qualified as a business valuator, certified public accountant, and instructor in forensic accounting and valuation.

The court excluded Gottlieb’s factual history of Trucco and its predecessor entities, beginning with “Condensed History of A.J. Trucco, Inc.” through page 18 of his report. It also excluded any opinions about the reasons for Trucco’s growth or success. The court found those subjects either could be understood by a lay jury or improperly attempted to resolve factual issues for the jury.

Disposition

Judge Sarah L. Cave ordered that Trucco’s motion was granted in part and denied in part, with the specified portions of Westland’s rebuttal report and testimony excluded. Redcell’s motion was also granted in part and denied in part, with the specified portions of Gottlieb’s report and testimony excluded. The court stated that the motions were otherwise denied and directed the clerk to close the two motions.