Court Opinion

ID: 2971189
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:30:36.424482+00
Date Added: 2024-06-11T12:03:30.238240
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RECOMMENDED FOR FULL-TEXT PUBLICATION
                Pursuant to Sixth Circuit Rule 206                     2     JGR, Inc. v. Thomasville             Nos. 02-3640/3731
        ELECTRONIC CITATION: 2004 FED App. 0163P (6th Cir.)                  Furniture Industries, Inc.
                    File Name: 04a0163p.06
                                                                                           _________________
UNITED STATES COURT OF APPEALS                                                                  COUNSEL
                  FOR THE SIXTH CIRCUIT                                ARGUED:       Michelle J. Sheehan, REMINGER &
                    _________________                                  REMINGER, Cleveland, Ohio, for Appellant. Marvin L.
                                                                       Karp, ULMER & BERNE, Cleveland, Ohio, for Appellee.
 JGR, INC.,                       X                                    ON BRIEF: Michelle J. Sheehan, Roy A. Hulme,
            Plaintiff-Appellee/ -                                      REMINGER & REMINGER, Cleveland, Ohio, for Appellant.
              Cross-Appellant, -                                       Marvin L. Karp, ULMER & BERNE, Cleveland, Ohio, for
                                   -  Nos. 02-3640/3731                Appellee.
                                   -
           v.                       >                                                      _________________
                                   ,
                                   -                                                           OPINION
 THOMASVILLE FURNITURE             -                                                       _________________
 INDUSTRIES, INC.,                 -
         Defendant-Appellant/ -                                           BOYCE F. MARTIN, JR., Circuit Judge. In this diversity
               Cross-Appellee. -                                       breach of contract action, Thomasville Furniture Industries,
                                   -                                   Inc. appeals a $1,500,000 judgment in favor of JGR, Inc., and
                                  N                                    JGR cross-appeals the denial of pre-judgment interest. We
      Appeal from the United States District Court                     note at the outset that although it is unclear whether “JGR,
     for the Northern District of Ohio at Cleveland.                   Inc.” is the actual, formal name of the plaintiff company – as
      No. 96-01780—Ann Aldrich, District Judge.                        opposed to an abbreviation – we refer to it as such because
                                                                       the parties have done so. For the reasons discussed below, we
                   Argued: January 29, 2004                            hold that the district court abused its discretion in permitting
                                                                       a JGR witness to give lay opinion testimony about JGR’s lost
               Decided and Filed: June 3, 2004                         profits and loss of business value, and that the improper
                                                                       admission of this testimony requires vacature of the damages
Before: MARTIN and MOORE, Circuit Judges; WEBER,                       award and remand for a new trial solely on the issue of
              Senior District Judge.*                                  damages.
                                                                           I. FACTUAL AND PROCEDURAL BACKGROUND
                                                                         The contract at issue in this case is a written agreement
                                                                       called the “Thomasville Furniture Industries, Inc.
    *
                                                                       ‘Thomasville Gallery’ Program” – which we will refer to as
     The Hon orable H erman J. W eber, Senior United States District   the “Gallery Agreement” – that governs the relationship
Judge for the Southern District of Ohio, sitting by designation.

                                 1
Nos. 02-3640/3731             JGR, Inc. v. Thomasville       3    4        JGR, Inc. v. Thomasville              Nos. 02-3640/3731
                              Furniture Industries, Inc.                   Furniture Industries, Inc.

between Thomasville, a furniture manufacturer, and furniture      display area devoted solely to Thomasville products, as
retail establishments that Thomasville approves as                specified in the 1990 Gallery Agreement. Gerald’s was
“Thomasville Galleries.” Pursuant to the Gallery Agreement,       located across the street from another furniture store, called
Thomasville Galleries were “expected to” abide by certain         “Furniture Land,” which was owned and operated by an
rules and requirements, such as maintaining a high quality        individual named Mike Baker.1 Despite a promising
store, allowing Thomasville to exercise control over              beginning, Gerald’s eventually began to lose money and JGR
personnel training, signage and other aspects of the business,    became unable to pay Thomasville for the products that it
and – most importantly for purposes of this appeal –              purchased for its Gerald’s store. Thomasville provided credit
displaying Thomasville products in an area that conformed to      counseling services to JGR, but was forced to begin holding
detailed specifications. In exchange, Thomasville offered its     orders until JGR could pay for them.
Thomasville Galleries assistance with interior design,
advertising and research, as well as a non-exclusive license to     In March 1992, Thomasville revised its Gallery Agreement.
use Thomasville trademarks in connection with product             The most significant change, for purposes of this case, was
promotions.                                                       the addition of an “expectation” that Thomasville Galleries
                                                                  would “[d]isplay Thomasville product covering at least 7,500
   If a retailer wished to be designated a Thomasville Gallery    sq. ft. of selling floor space of which a physically separate and
and agreed to the terms set forth in the Gallery Agreement, its   distinct area of no less than 5,000 sq. ft. (the “Gallery”) is set
representative would sign the last page of the program            aside for the sole and exclusive purpose and function of
description and submit it to Thomasville for approval. This       arranging, selling, and displaying Thomasville wood,
is what Gerald Yosowitz, JGR’s main principal, did on behalf      upholstery, and other Thomasville home furnishings
of JGR in April 1990, and Thomasville approved JGR as a           products.” (Emphasis added.) A March 10, 1992, letter
Thomasville Gallery the following month. The version of the       written by Thomasville Vice President Daniel Grow
Gallery Agreement that was in effect at that time provided,       highlights this change and states that Thomasville Galleries
among other things, as follows:                                   “should establish a plan to be at this new minimum square
                                                                  footage level of 7,500 sq. ft. by January 1, 1993. Any new
  2. Expectations of Retailers. Retailers designated as           Galleries will be at the 7,500 sq. ft. level when they open.”
  Thomasville Galleries will be expected to:
                                                                    Yosowitz, on behalf of JGR, signed and returned the
  (a) Set aside a physically separate and distinct area of        revised Gallery Agreement to Thomasville with handwritten
      its selling floor space with a minimum of 5,000             notes on the back. These notes state, in relevant part:
      square feet for the sole and exclusive purpose and
      function of arranging, selling, and displaying                  . . . I sign this agreement under the condition that all
      Thomasville furniture products, including both                  other Thomasville dealers in my marketing area are held
      Thomasville wood furniture and Thomasville
      upholstery.
                                                                       1
 On September 15, 1990, JGR opened a furniture store in                 Prior to forming the JGR business, Yosowitz worked with Baker at
Mentor, Ohio, called “Gerald’s,” with a 5,000-square foot         Furniture Land. According to Yo sowitz, his relationship with Baker
                                                                  deteriorated following his departure from Furniture Land.
Nos. 02-3640/3731             JGR, Inc. v. Thomasville           5   6       JGR, Inc. v. Thomasville                   Nos. 02-3640/3731
                              Furniture Industries, Inc.                     Furniture Industries, Inc.

  to the same conditions . . . . If I correctly understand the       Ultimately, no longer able to continue doing business,
  letter from Dan Grow (dated 3/10/92) which spells out              Gerald’s closed its doors on October 2, 1993.
  Thomasville’s new guidelines (including square footage
  requirements) all Thomasville dealers existing or new                 Although each party in this case has asserted various claims
  will be held to the same requirements. If this is in fact          against the other,2 the sole claim with which we are
  the case my concearns [sic] have been addressed . . . .            concerned in this appeal is JGR’s claim that Thomasville
                                                                     breached the 1992 Gallery Agreement. The essence of that
In a letter dated August 4, William Carrico, also a                  claim is that Thomasville breached the Agreement by
Thomasville Vice President, acknowledged Yosowitz’s notes            permitting Baker’s to sell Thomasville furniture without
and stated that Thomasville would “review the matter by              requiring Baker’s to “[d]isplay Thomasville product covering
July 1, 1993,” after letting “matters settle out.”                   at least 7,500 sq. ft. of selling floor space of which a
                                                                     physically separate and distinct area of no less than 5,000 sq.
   In the meantime, in the fall of 1992 Thomasville negotiated       ft. (the “Gallery”) is set aside for the sole and exclusive
with Furniture Land, JGR’s competitor, a different marketing         purpose and function of arranging, selling, and displaying
agreement, called the “Thomasville Home Furnishings Store            Thomasville wood, upholstery, and other Thomasville home
Agreement.” Pursuant to this agreement, the name of the              furnishings products.” This claim was the subject of a jury
Furniture Land chain would be changed to “Baker’s” and the           trial featuring the testimony of several witnesses. JGR
chain would carry the Thomasville line in seven stores,              presented the only damages witness, a certified public
including the one across the street from Gerald’s, as well as        accountant and lawyer named James Gornik. Gornik testified
in a brand new 10,000 square foot store devoted solely to            as to the amount of lost profits and loss of business value that
Thomasville products. In November 1992, pursuant to the              JGR suffered as a result of Thomasville’s alleged breach of
Home Furnishings Agreement, Furniture Land changed the               the 1992 Gallery Agreement. Thomasville filed a motion in
name of all its stores in the Cleveland area to “Baker’s” and        limine to exclude Gornik’s testimony on the ground that it
kicked off a “grand re-opening” of the store across the street
from Gerald’s. Baker’s advertised this grand opening with a
circular featuring its new “Thomasville Gallery” line of                 2
                                                                           On July 1, 1996, Thoma sville filed suit in the district court against
furniture. JGR alleges that Baker’s displayed only a few             JGR to collect approximately $665,000 for furniture and service charges
isolated pieces of Thomasville furniture at its grand opening.       that JGR owed to Tho masville. JGR subsequently filed suit against
According to JGR, Baker’s employees urged its customers to           Thoma sville in Ohio state court, alleging that Thomasville’s breach of the
view the entire line of Thomasville furniture at Gerald’s, but       1992 Gallery Agreement and fraudulent misrepresentation caused JGR to
to purchase the items at Baker’s. Baker’s customers allegedly        go out of b usiness. T homasville removed that suit to federal court and
                                                                     filed a motion for summary judgment on all of JGR’s claims. On
were handed cards that stated: “Go to Gerald’s. Bring back           September 7, 1999, the district court granted Thomasville’s motion for
a price and we’ll beat it by five percent.”                          summary judgment in its entirety. JG R then filed a motion for
                                                                     reconsideration, arguing that the district court had misinterpreted the
  The day after the Baker’s grand opening, in light of JGR’s         nature of its claim for breach of the 1992 Gallery Agreement. The district
mounting financial problems and debts, Thomasville placed            court denied the motion and JGR appealed. On appeal, this Court
JGR’s credit on hold and refused to process or ship any orders       reversed and remanded the case for further pro ceed ings with respect to
                                                                     that claim. This appeal relates solely to the proceedings on remand
from Gerald’s until JGR sent full payment for those orders.          concerning that breach of contract claim.
Nos. 02-3640/3731            JGR, Inc. v. Thomasville       7    8       JGR, Inc. v. Thomasville                 Nos. 02-3640/3731
                             Furniture Industries, Inc.                  Furniture Industries, Inc.

was properly the subject of expert testimony, not lay opinion    Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999); Barnes
testimony, but that he was not qualified to give expert          v. Owens-Corning Fiberglass Corp., 201 F.3d 815, 822 (6th
testimony. The district court denied Thomasville’s motion,       Cir. 2000). Thomasville argues that the district court abused
and Gornik proceeded to testify about projections that he had    its discretion in permitting Gornik to testify as a lay witness.
prepared showing what JGR’s net income would have been in        JGR, on the other hand, argues that the district court in fact
each year from 1991 through 2005 and what the net worth and      permitted Gornik to testify as an expert witness, not a lay
value of the business would have been at the end of each of      witness, and that although no formal hearing was conducted
those years.                                                     pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc.,
                                                                 509 U.S. 579 (1993), the district court nevertheless properly
  The jury determined that Thomasville had, in fact, breached    determined that he was qualified to give expert testimony.
the 1992 Gallery Agreement and that JGR was entitled to a
damages award of $0 for lost profits and $1,500,000 for loss       The first issue that we must resolve is whether the district
of business value. Thomasville subsequently filed a Rule 50      court permitted Gornik to testify as a lay witness or as an
motion for judgment as a matter of law, arguing that the jury    expert witness. Fortunately, the record is replete with explicit
verdict had no basis for an award of loss of business value.     statements by the district court indicating that Gornik was a
The district court denied the motion. JGR filed a motion for     lay witness and was permitted to testify as such. For
pre-judgment interest pursuant to Ohio Revised Code section      example, in a colloquy with counsel regarding Thomasville’s
1343.03(A). While the district court initially granted the       motion to exclude Gornik’s testimony, the court reasoned:
motion and awarded pre-judgment interest at the rate of          “But I don’t remember having Daubert extended to a CPA
3.73%, Thomasville filed a motion for reconsideration of that    who basically is, in this case, a factual witness. He does their
award, which the district court granted. On reconsideration,     books.”3 The following morning, after conducting additional
the district court changed its original ruling and declined to   research, the district court confirmed that Gornik would not
award any pre-judgment interest. Judgment was entered for        be characterized as an expert witness and, therefore, “there is
JGR in the amount of $1,500,000. Thomasville appealed the        no Daubert analysis to be done.” Moreover, the district court
district court’s $1,500,000 judgment in favor of JGR, and        explicitly stated: “I’m glad nobody is asking me to call this
JGR cross-appealed the denial of its motion for pre-judgment     man an expert . . . I wouldn’t want to have a Daubert hearing
interest.                                                        on his methodologies.”
                      II. ANALYSIS
              A. Testimony of James Gornik
                                                                     3
                                                                       The district court’s apparent assumption that Gornik was a “factual
  The primary issue in this case concerns the admissibility of   witness” who “does [JGR ’s] books” is false. In fact, Gornik was never an
testimony by JGR witness James Gornik, a certified public        accountant for JGR and never did its books. His first experience with
accountant and lawyer who testified about the amount of lost     JGR was in March 1999, when he was contacted by JGR’s trial counsel
profits and loss of business value that JGR allegedly suffered   for the purpose of “putting down on paper what the financial statements
as a result of Thomasville’s breach of contract. We review a     of Gerald’s Furniture would have looked like had the Thomasville support
district court’s evidentiary rulings for abuse of discretion.    to the business continued and had the owners been able to carry through
                                                                 on how they planned to operate the business.”
Nos. 02-3640/3731                   JGR, Inc. v. Thomasville               9   10      JGR, Inc. v. Thomasville                  Nos. 02-3640/3731
                                    Furniture Industries, Inc.                         Furniture Industries, Inc.

  Thus, the record unequivocally indicates that the district                     The Advisory Committee Notes for the 2000 Amendments
court permitted Gornik to testify as a lay witness, not an                     further explain that:
expert witness, and that no inquiry was made as to Gornik’s
qualifications to testify as an expert witness. Therefore, the                    [M]ost courts have permitted the owner or officer of a
question to which we now turn is whether the district court                       business to testify to the value or projected profits of the
abused its discretion in permitting Gornik to testify as a lay                    business, without the necessity of qualifying the witness
witness. See United States v. Anderskow, 88 F.3d 245, 249                         as an accountant, appraiser, or similar expert. Such
(3d Cir. 1996) (“we review the admission of . . . opinion                         opinion testimony is admitted not because of experience,
testimony under Rule 701 for abuse of discretion”); Doddy v.                      training or specialized knowledge within the realm of an
Oxy USA, Inc., 101 F.3d 448, 459 (5th Cir. 1996) (admission                       expert, but because of the particularized knowledge that
of lay testimony under Rule 701 is reviewed for abuse of                          the witness has by virtue of his or her position in the
discretion).                                                                      business. The amendment does not purport to change
                                                                                  this analysis.
  A lay witness – i.e., one who “is not testifying as an expert”
– may only testify as to:                                                      Id. (emphasis added) (citation omitted).

  opinions or inferences which are (a) rationally based on                        The explanation set forth in the Advisory Committee Notes
  the perception of the witness, (b) helpful to a clear                        is reflected in the recent Fifth Circuit case of Dijo, Inc. v.
  understanding of the witness’ testimony or the                               Hilton Hotels Corp., which is strikingly similar to the case
  determination of a fact in issue, and (c) not based on                       sub judice. In Dijo, the Fifth Circuit held that the district
  scientific, technical, or other specialized knowledge                        court abused its discretion in permitting a “a financial
  within the scope of Rule 702.                                                consultant” to testify as a lay witness regarding the plaintiff
                                                                               company’s lost profits. 351 F.3d 679, 685-87 (5th Cir. 2003).
FED . R. EVID . 701. Subsection (c) was added to this rule in                  Although the witness was the plaintiff’s “primary contact” at
2000 in order to “eliminate the risk that the reliability                      a commercial lending facility with which the plaintiff had a
requirements set forth in Rule 702 will be evaded through the                  business relationship, he had not served as an owner or officer
simple expedient of proffering an expert in lay witness                        of the plaintiff company. Id. at 685. Additionally, the
clothing.” FED . R. EVID . 701, Advisory Committee Notes for                   witness’s “opinion . . . was based on preliminary income
the 2000 Amendments.4                                                          figures and other information that he had received from [the
                                                                               plaintiff’s founder],” and his “appraisal was not based upon
                                                                               his own independent knowledge or observations.” Id. at 686.
   4
       Rule 70 2 provides:

   If scientific, technical, or other specialized kno wledge will assist
   the trier of fact to understand the evidence or to determine a fact
   in issue, a witness q ualified as an expert b y know ledge , skill,              reliable principles and methods, and (3) the witness has applied
   experience, training, or education, may testify thereto in the                   the principles and method s reliably to the facts of the ca se.
   form of an opinion or otherwise, if (1) the testimony is based
   upon sufficient facts or data, (2) the testimo ny is the product of         F ED . R. E VID . 702 .
Nos. 02-3640/3731                   JGR, Inc. v. Thomasville            11     12   JGR, Inc. v. Thomasville              Nos. 02-3640/3731
                                    Furniture Industries, Inc.                      Furniture Industries, Inc.

   In considering whether the witness was properly permitted                     Moreover, the improper admission of Gornik’s testimony
to give lay opinion testimony concerning lost profits, the Fifth               affected Thomasville’s substantial rights. See id. at 687. For
Circuit reasoned:                                                              whatever reason, Gornik was the only witness called by either
                                                                               party to testify as to the issue of damages, and – although he
  It is telling that DIJO responds . . . not with evidence of                  was subject to cross-examination – Gornik’s testimony about
  [the witness]’s involvement with [the plaintiff] or the                      the amount of JGR’s damages was unchallenged by any other
  Project, but only emphasizing [his] substantial business                     witness.
  experience. . . Such generic industry experience does not
  pass Rule 701 scrutiny. [The plaintiff] never attempted                        For these reasons, we hold that the improper admission of
  to qualify [the witness] as an expert; and a lay witness                     Gornik’s lay opinion testimony requires vacature of the jury’s
  who was never employed by or directly involved in a                          damage award and remand for a new trial solely on the issue
  business is unlikely to have the type of first-hand                          of damages. See id. at 687. In light of this holding, we need
  knowledge necessary to provide reliable forecasts of                         not consider Thomasville’s other arguments concerning the
  future lost profits. The further removed a layman is from                    damages award or JGR’s cross-appeal regarding the denial of
  a company’s day-to-day operations, the less likely it is                     pre-judgment interest. We must, however, consider two
  that his opinion testimony will be admissible under Rule                     additional arguments that Thomasville has raised.
  701.
                                                                                          B. Evidence of Alleged Oral Contract
Id. Thus, in light of the witness’s lack of “the requisite first-
hand, personal knowledge” of the company about which he                           Thomasville’s remaining two arguments concern the
testified, the Fifth Circuit held that the district court abused its           admission of evidence about an alleged oral contract between
discretion in permitting the witness to give lay opinion                       JGR and Thomasville. JGR had previously alleged that
testimony under Rule 701. Id. at 686-87.                                       Thomasville orally promised JGR that it would not sell
                                                                               Thomasville furniture to Baker’s. This alleged oral promise
  The same is true in this case. Like the witness in Dijo,                     was the subject of a prior breach of contract claim that is not
Gornik has never been an owner, officer or director of JGR.                    at issue here. Nevertheless, the district court permitted
Additionally, the information upon which he relied in making                   Yosowitz to mention this alleged oral promise in his trial
his calculations of lost profits and loss of business value came               testimony, over Thomasville’s objection. Thomasville later
primarily from Yosowitz, and Gornik admitted that he did not                   submitted proposed jury interrogatories that it claimed were
independently verify much of that information.5 Therefore,                     necessary to ensure that the jury did not focus upon the
Gornik had no basis upon which to offer lay opinion                            testimony concerning the alleged oral contract, but the district
testimony about JGR’s lost profits or loss of business value,                  court declined to submit the interrogatories to the jury.
and the district court abused its discretion in admitting that                 Thomasville argues that the admission of Yosowitz’s
testimony.                                                                     testimony about the alleged oral contract was irrelevant under
                                                                               Rule 401 and unfairly prejudicial under Rule 403, and that the
                                                                               district court abused its discretion in refusing to submit
    5                                                                          Thomasville’s proposed interrogatories to the jury.
        Go rnik testified: “Our role was not to verify a whole lot of things
. . . I only verified them against my own e xperience.”
Nos. 02-3640/3731              JGR, Inc. v. Thomasville        13    14    JGR, Inc. v. Thomasville               Nos. 02-3640/3731
                               Furniture Industries, Inc.                  Furniture Industries, Inc.

  The district court recognized that the oral promises at issue      imposed on JGR.” This instruction – particularly in
were “not part of the [1992 Gallery Agreement],” but                 combination with the court’s other jury instructions – was
admitted some evidence of the alleged oral contract as               proper and served the purposes that Thomasville’s proposed
“background testimony regarding the relationship between             interrogatories were intended to serve.
JGR and Thomasville Furniture prior to the 1992 agreement.”
The district court cautioned JGR’s counsel not to “dwell” on                              III. CONCLUSION
the evidence and explicitly instructed the jury that:
                                                                       For the foregoing reasons, we AFFIRM the district court’s
  the sole issue in this case is whether Thomasville                 judgment insofar as it reflects the jury’s verdict as to liability,
  breached the 1992 agreement. Should you consider                   but we VACATE the jury’s damages award and REMAND
  evidence regarding written or oral statements or acts of           for a new trial solely on the issue of damages.
  JGR, Thomasville Furniture, or other parties prior to the
  1992 agreement, consider it only to the extent that it
  helps you understand the intentions of JGR and
  Thomasville Furniture with regard to that 1992
  agreement.
Based upon our thorough review of the record, we conclude
that the district court committed no abuse of discretion in
admitting some evidence relating to the alleged oral contract
for the limited purpose of background information,
particularly in light of its instruction to the jury, which we
must presume was followed.
   We also conclude that the district court did not abuse its
discretion in declining to submit Thomasville’s proposed
interrogatories to the jury. Federal Rule of Civil Procedure
49(b) permits a trial court to submit interrogatories to a jury
on issues of fact that are necessary for a verdict, but the rule
does not require the court to do so. It is well established that
it “is in the [trial] court’s discretion whether to submit written
interrogatories in connection with a general verdict.” Portage
II v. Bryant Petroleum Corp., 899 F.2d 1514, 1520 (6th Cir.
1990). In this case, the district court instructed the jury to
determine whether “Thomasville Furniture breached their
1992 agreement by breaching a representation, or
understanding, that any new Thomasville dealer would be
held to the same square footage requirements that were being