Red Hawk, LLC v. Colorforms Brand LLC

Background

Red Hawk, LLC sued Colorforms Brand LLC, Out of the Blue Enterprises, LLC, and OOTB Productions, Inc. for allegedly breaching a Royalty Agreement. Under the agreement, Defendants were required to pay Red Hawk royalties based on Net Sales of certain existing products and other products sold using the Colorforms brand, subject to listed exclusions. Red Hawk sought royalties allegedly owed for use of the brand in connection with, among other things, the animated Netflix series Charlie’s Colorforms City.

Red Hawk moved to exclude portions of two defense expert reports under Federal Rule of Evidence 702, which governs the admission of expert testimony. Red Hawk challenged Susan E. Miller’s opinions about the meaning of “Products” in the Royalty Agreement and Ezra J. Doner’s opinion about the value of a hypothetical upfront license fee for the Colorforms name in filmed entertainment. Defendants separately moved to redact portions of the reports concerning royalty rates, dealings with Netflix, expert fees, and proprietary information about industry agreements. Red Hawk consented to the proposed redactions.

Miller’s testimony

The court found that “Products” is ambiguous because the agreement contains indications supporting both sides’ interpretations. The agreement lists consumer products, but its language and schedules do not conclusively establish that “Products” excludes television programs or films. Because the term is ambiguous, expert testimony about general industry usage of terms such as “product” and “net sales” could help the jury evaluate the parties’ competing interpretations.

The court nevertheless excluded portions of Miller’s opinions. Miller may not testify about what the parties intended “Products” or “Net Sales” to mean, or state that “Products” was intended to cover only consumer goods similar to those listed in the agreement. Those opinions relied on ordinary contract-interpretation tools available to the jury and improperly addressed the ultimate issue the jury must decide. The court therefore allowed Miller to testify generally about industry usage but excluded her opinions interpreting the agreement or deciding its scope.

Doner’s testimony

The court excluded Doner’s opinion about a hypothetical upfront license fee. Red Hawk’s amended complaint sought royalties based on the Royalty Agreement’s definition of Net Sales and did not allege another basis for calculating damages. Because the agreement supplied the damages formula, the court found that a hypothetical fee unrelated to that formula was irrelevant. The court rejected Defendants’ argument that the opinion could be used as an alternative damages calculation.

Redactions

The court treated the expert reports as judicial documents because they directly concerned the court’s decision on the expert-evidence motion. It nevertheless granted the motion to redact. The court found that the proposed information had little bearing on the expert-evidence ruling and that the privacy interests of Defendants and non-party Netflix were substantial. The conclusion refers to this ruling as granting Defendants’ motion to seal, while the earlier discussion calls it a motion to redact.

Disposition

The court granted in part Red Hawk’s Daubert motion and granted Defendants’ motion to redact the expert reports. The Clerk was directed to terminate the motions at docket entries 75 and 76. The parties were ordered to submit a joint letter by November 15, 2022, addressing next steps, settlement discussions, and whether they sought mediation or a settlement conference.