After more than a decade of litigation, a damages case featuring an upstart sportswear company that portrayed itself in the same league with the leading brand ended with a whimper. The court first struck down a multimillion-dollar lost profits award. And, even though it acknowledged the plaintiffs’ business had lost value because of the defendant’s conduct, it later also walked back its order for a new trial on lost value damages because the plaintiffs had no “non-speculative” evidence to prove the loss.
This case first attracted attention when the court admitted the testimony under Daubert even though the expert analysis might contain “seemingly improbable” damages conclusions.
No comparison: The plaintiffs, the founder and his “Sunday Players” company, sued the defendant for breaching an exclusive licensing agreement to manufacture, market, and promote sports apparel, specifically compression sportswear. The defendant allegedly told the plaintiff that MTV was interested in partnering with Sunday Players. An MTV sublicensing agreement would result in hundreds of millions in product sales. No deal between the defendant and MTV ever happened, and the defendant abandoned its agreement with the plaintiffs. The defendant was unable to make a single sale even though it had pitched the Sunday Players brand to many large retailers and spent about $220,000 in marketing. The defense expert calculated that total sales—made by the plaintiffs’ sales team—during the license agreement period were less than $150,000.
The plaintiffs’ damages expert performed a yardstick analysis to determine lost profits and lost business value. He used “Under Armour,” the market leader in the compression sportswear industry, as a benchmark, claiming it and Sunday Players sold similar products and were on a similar trajectory. Just as Under Armour experienced significant growth owing to its promotion agreement with ESPN, a deal between the defendant and MTV would have led to similar success for Sunday Players. Ostensibly to account for increased competition in the compression apparel market, he reduced the comparative figure he derived from Under Armour's sales history by 50%.
The analysis triggered a harsh reproof from the defendant’s expert, a leading valuator. The two brands were “so dissimilar as to render [the expert’s] selection of Under Armour laughable,” the defense said. The court admitted the testimony under Daubert. Based on expert testimony, a jury awarded the plaintiffs $4.35 million in lost profits, or, alternatively, $500,000 in lost business value.
In ruling on the defendant’s post-trial challenges to the award, the court (a different judge) agreed the plaintiffs had failed to prove their “new and untested business” would have achieved the vast success their expert predicted but for the defendant’s breaches. “The yardstick comparison can show the profits a company could have expected if it had maintained its market share; it cannot establish that a company without market share would have become an overnight success.” The court dismissed the proposition that Sunday Players was comparable to the market leader as nothing more than “the entrepreneur’s cheerful prognostications.”
“Accelerating the inevitable,” the court decided to close the case by awarding the plaintiffs one dollar in nominal damages.
Gary Trugman (Trugman Valuation Associates Inc.), the expert for the prevailing defendant, sums up the outcome this way: “It was an interesting case on what an expert should never do. The judge got it right.”
The cases are Washington v. Kellwood Co., 2016 U.S. Dist. LEXIS 92309 (July 15, 2016) (Kellwood II), and Washington v. Kellwood Co., 2016 U.S. Dist. LEXIS 136612 (Sept. 30 2016) (Kellwood III). A digest for both cases and the court’s opinions will be available soon at BVLaw. BVLaw subscribers can find a digest of the court’s earlier Daubert opinion here.