IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

AMERICAN HARDWARE )

MANUFACTURERS ASSOCIATION, )

Plaintiff, )

)

v. ) 03 C 9421

)

REED ELSEVIER INC., et al., )

Defendants. )

MEMORANDUM AND ORDER

In 2003 plaintiff American Hardware Manufacturers Association (the “Association”) filed

suit against defendants Reed Elsevier, Inc., and two of its divisions, Reed Exhibitions and

Association Expositions & Services (collectively “Reed”) and Freeman Decorating Co. and

Freeman Decorating Services, Inc. (collectively “Freeman”), stemming from an agreement it had

with Reed to sponsor the National Hardware Show (the “Show”), a trade show held in Chicago

until 2003. Freeman served as the general contractor for the Show. Before the court is a motion

by the Association, William Farrell, and Timothy Farrell (collectively, “AHMA”) to bar the

rebuttal report and testimony of Freeman’s expert. Unsurprisingly, Freeman objects and also

asks for an award of the attorney’s fees and costs it incurred in responding to the motion. For the

following reasons, AHMA’s motion to bar is granted and Freeman’s request for fees and costs is

denied.

I. Background

A. Facts

AHMA’s initial complaint included three counts against Freeman, two of which (Count

II, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act
Count I, alleging common-law fraud against Reed, remains in full. Count II, alleging 1

ICFA violations, remains only as to the allegation that Reed promoted the 2004 Las Vegas

hardware show with AHMA’s trademarks. 

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(“ICFA”), and Count VI, alleging unjust enrichment) were dismissed in 2004. See Mem. Op. and

Order, Dec. 28, 2004, Docket No. 61. As a result, the only claim remaining against Freeman is

for civil conspiracy under Illinois law. AHMA’s fraud and civil conspiracy claims against Reed

remain.1

AHMA’s second amended complaint (“SAC”) alleges that both Freeman and Reed

engaged in a “deceptive course of conduct” for the purpose of defrauding AHMA and obtaining

monetary benefits. See SAC at ¶¶ 103-104, 111. The essence of the allegations is that, pursuant

to a 1998 contract between Reed and Freeman, Reed hired Freeman as its general contractor for

the annual Show through 2006 (later extended to 2009), in exchange for undisclosed kickbacks,

free goods, and services from Freeman to Reed. See id. at ¶¶ 54-55. In order to recoup the

money it paid to Reed, Freeman allegedly engaged in “cost-shifting,” whereby it charged Show

exhibitors more for certain items, and Reed allegedly “permitted and/or directed” Freeman to

engage in this practice. See id. at ¶ 59. According to AHMA, the cost-shifting was a primary

reason that exhibitor participation in the Show declined between 2001 and 2003. See id. at ¶ 45. 

AHMA further alleges that Freeman and Reed did not disclose their arrangement to it.

B. The Dueling Expert Reports: Litvak (AHMA) and Elson (Freeman)

In the motion presently before the court, AHMA seeks to bar the rebuttal report and

testimony of Freeman’s expert, Craig T. Elson, arguing that the report misstates the law of civil

conspiracy and will thus not assist the trier of fact as required under Fed. R. Evid. 702. The
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court’s consideration of the propriety of Elson’s report begins with a recap of the report to which

he is responding. That report, by AHMA’s expert Jeff Litvak, states that AHMA asked him to:

1) review and analyze documentation and related testimony involving Reed’s

accounting and financial reporting practices relating to payments made by

Freeman to Reed . . . ; 2) Review and analyze related documentation and

testimony in conjunction with Reed’s actions during the time of the Freeman

payments; 3) Calculate damages, if any, related to the payments from Freeman to

Reed and Reed’s profits from the Show over the relevant time period; and 4)

Render an expert report.

Expert Report of I. Jeff Litvak, p. 1 (“Litvak report”).

Litvak, a certified public accountant, focuses almost entirely on Reed’s accounting

practices and concludes that Reed should have recorded and reported the kickbacks and in-kind

contributions from Freeman as revenue. According to Litvak, if Reed had done so, it would have

owed AHMA a percentage of that revenue pursuant to Reed’s contract with AHMA. Litvak then

analyzes various Reed employees’ explanations as to why these payments were not reported as

revenue and discusses certain accounting principles. He concludes that the financial statements

Reed provided to AHMA as required by their contract were “inaccurate, incomplete, and

materially misleading.” Id. at 67. Finally, he quantifies the damages and disgorged profits that

Reed allegedly owes AHMA as a result of the allegedly improper payments and in-kind

contributions.

Elson’s rebuttal report contains two principal components: (1) a detailed evaluation of

Litvak’s report and (2) an analysis of whether Freeman’s behavior harmed AHMA given the rates

Freeman charged and other factors that purportedly contributed to the decline of exhibitor

participation in the Show. Elson’s thesis is that Litvak’s report is flawed because it fails to assess
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whether the defendants, and Freeman in particular, caused the economic harm AHMA allegedly

suffered. Elson uses this causation argument to refute Litvak’s assessment of AHMA’s damages,

but does not dispute Litvak’s numbers or methodology. 

II. AHMA’s Motion to Bar 

For the following reasons, the court finds that Elson’s report does not misstate the law, as

AHMA contends. Nevertheless, the court finds Elson’s report must be barred for two other

reasons: it is neither a proper rebuttal to Litvak’s report nor addresses the proper subject matter

for expert testimony.

A. Elson’s Report is not a Proper Rebuttal

The major flaw with Elson’s report is that it is not a proper rebuttal report because it does

not address the same subject matter as Litvak’s report and generally fails to respond to Litvak’s

report. Specifically, rebuttal evidence must contradict, impeach or defuse the impact of evidence

offered by the adverse party. Peals v. Terre Haute Police Dept., 535 F.3d 621, 630 (7th Cir.

2008). Thus, experts may submit rebuttal reports but must limit the contents of their reports to

“evidence [that] is intended solely to contradict or rebut evidence on the same subject matter

identified” in another party’s expert witness report. Fed. R. Civ. P. 26(a)(2)(C)(ii); City of Gary

v. Shafer, No. 2:07-CV-56-PRC, 2009 WL 1370997, *5 (N.D. Ind. May 13, 2009) (plaintiff’s

expert report was proper because each opinion it contained rebutted the “same subject matter” as

that contained in the report of the defendant’s expert); Procter & Gamble v. McNeil-PPC, Inc.,

No. 08 C 251, 2009 WL 1351447, *4 (W.D. Wis. May 12, 2009) (striking paragraphs of expert
Litvak notes briefly that Freeman accounted for the payments it made to Reed as a direct

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cost associated with each individual show. This practice, Litvak claims, refutes Reed’s

explanations of why it listed the payments as an offset rather than revenue. Litvak cites

Freeman’s practice to bolster his argument that Reed should have treated the payments as

revenue. In other words, he argues that Freeman accounted for the payments correctly, but Reed

did not. Given Litvak’s emphasis on Reed’s conduct, this passing reference to Freeman is not

enough to make Elson’s report responsive to Litvak’s report. 

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rebuttal report identified as “Supplementation of My Opinion on Infringement” because “rebuttal

reports are limited to responding to the issues raised by the opposing parties’ experts”). 

Here, Elson’s report does not respond to Litvak’s description of accepted accounting

principles or the methodology Litvak used to conclude that Reed’s accounting practices were

materially misleading. Moreover, as AHMA points out, Elson’s report is aimed at establishing

that Freeman’s alleged misconduct cannot be the but-for cause of harm to AHMA. Litvak’s

report, however, focuses almost exclusively on Reed, and contains virtually no discussion of

Freeman’s behavior. In this respect, Elson’s report fails to respond to Litvak’s report. 2

Elson’s report is also not a proper rebuttal because it overwhelmingly fails to challenge

Litvak’s analysis of Reed’s accounting methods. Elson’s general observation that the damages

calculated by Litvak are too high is the closest Elson comes to rebutting Litvak’s report. For

example, Elson asserts in a single short paragraph that Litvak may have “over-quantifi[ed]”

damages based on the interest rate Litvak used. See Rebuttal Report of Craig T. Elson (“Elson

report”) at 104. However, Elson does not provide any specifics supporting this statement or

explain the methodology he used. Thus, his report does not meet the requirement of reliability

under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Zenith Elecs. Corp.

v. WH-TV Broad. Corp., 395 F.3d 416, 419-20 (7th Cir. 2005) (“As we so often reiterate: ‘An
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expert who supplies nothing but a bottom line supplies nothing of value to the judicial process’”)

(internal citation omitted).

B. Elson’s Report Does Not Address Proper Subjects for an Expert Report

Rule 702 of the Federal Rules of Evidence and Daubert govern the admissibility of expert

testimony in federal court. See Naeem v. McKesson Drug Co., 444 F.3d 593, 607 (7th Cir.

2006). 

Rule 702 provides that: 

If scientific, technical, or other 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 testify thereto

in the form of an opinion or otherwise, if (1) the testimony is based upon

sufficient facts or data, (2) the testimony is the product of reliable principles and

methods, and (3) the witness has applied the principles and methods reliably to the

facts of the case.

Fed. R. Evid. 702.

In turn, under Daubert, this court must function as a “gatekeeper” to “ensure the

reliability and relevancy of expert testimony.” Id. at 607, quoting Kumho Tire Co., Ltd. v.

Carmichael, 526 U.S. 137, 152 (1999). To perform the gatekeeping function, the court must

focus on the expert’s methodology, Smith v. Ford Motor Co., 215 F.3d 713, 718 (7th Cir. 2000),

and consider whether the expert’s work is “reasoned, uses the methods of the discipline, and is

founded on data,” Naeem, 444 F.3d at 608, quoting Lang v. Kohl's Food Stores, Inc., 217 F.3d

919, 924 (7th Cir. 2000). 

Elson’s rebuttal report falls short of the requirements of Daubert and Rule 702 for two

reasons. First, Elson criticizes Litvak’s opinion for failing to account for the fact that had

AHMA ever discovered the kickback scheme, Freeman would have stopped paying kickbacks
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and therefore AHMA would not have been entitled to a share. See Elson report at 22

(“Freeman’s payments to Reed would have stopped upon disclosure to AHMA, [and] a very

different damages analysis would have resulted.”) Based on this analysis, Elson concludes that

Litvak’s assessment of AHMA’s damages is too high.

The scenario Elson created—AHMA’s discovery of the kickback scheme and Freeman’s

discontinuation of payments—is entirely speculative and not based on “specialized knowledge”

as required under Rule 702. Although Elson examines some evidence in the record, he

essentially attempts to poke holes in Litvak’s logic. This is not something for which expert

testimony is required. See Ancho v. Pentek Corp., 157 F.3d 512, 518 (7th Cir. 1998) (internal

quotations omitted) (“An expert’s opinion is helpful only to the extent the expert draws on some

special skill, knowledge, or experience to formulate that opinion; the opinion must be an expert

opinion (that is, an opinion informed by the witness’ expertise) rather than simply an opinion

broached by a purported expert.”). This section of Elson’s report is, therefore, inadmissible. 

Second, Elson’s examination of other factors that allegedly contributed to the decline is

improper. For instance, he cites the impact of the Sept. 11, 2001 terrorist attacks, the

consolidation of the hardware/home improvement industry, and the relatively high cost of

holding a trade show in Chicago to debunk Litvak’s theory that the Show’s failure was entirely

attributable to the increased prices that Freeman imposed on exhibitors. Elson’s opinion,

however, is speculative. More importantly, like the portion of the report discussed above, it is

not based on any specialized knowledge. In addition, Elson’s curriculum vitae indicates that he

has expertise in damages analysis, but does not indicate that he is an expert in the hardware or
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trade show industries. Elson may thus not testify about factors that purportedly were responsible

for the decline in exhibitor participation in the Show. See Rule 702. 

Elson also compares the rates charged by Freeman and its competitors for comparable

trade shows in Chicago. To the extent that this is a proper subject for expert testimony (an issue

which the court need not reach), as discussed above, it does not respond to the subject matter

contained in Litvak’s report. Therefore, it too is inadmissible.

Finally, portions of Elson’s report contain legal conclusions, but “experts cannot make

those.” See United States v. Diekhoff, 535 F.3d 611, 619 (7th Cir. 2008). For instance, Elson

argues that Freeman had no duty to disclose the payments to AHMA, and in fact had a duty not

to disclose them pursuant to its contract with Reed. Not only is this argument unresponsive to

Litvak’s report, it is an improper and inadmissible legal conclusion. See id. For all of these

reasons, AHMA’s motion to bar Elson’s report is granted.

III. Freeman’s Request for Attorney’s Fees

Freeman asks the court to order AHMA to pay the attorney’s fees and costs it incurred in

responding to AHMA’s motion, arguing that AHMA filed it in bad faith to distract Freeman. 

The court possesses an inherent equitable power to impose sanctions, including ordering that one

party’s attorney fees be paid when the opposing party has acted in bad faith, vexatiously,

wantonly, or for oppressive reasons. Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991). 

“Because these inherent powers are potent, they must be exercised with caution and restraint.” 

Schmude v. Sheahan, 420 F.3d 645, 649-650 (7th Cir. 2005). The court finds that AHMA did

not file its motion in bad faith, so Freeman’s request for fees and costs is denied.
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IV. Conclusion

For the foregoing reasons, AHMA’s motion to bar Elson’s report and testimony [#927] is

granted. Each party will bear its own costs related to this motion. The parties are also reminded

that expert discovery closes August 31, 2009, pursuant to Magistrate Judge Cox’s order. The

parties should plan accordingly, as this is a firm date.

DATE: July 23, 2009 ________________________________

Blanche M. Manning

United States District Judge