Mutual of Omaha Mortgage, Inc. v. WaterStone Mortgage Corporation

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

MUTUAL OF OMAHA

MORTGAGE, INC.,

Plaintiff,

v. Case No. 8:22-cv-1660-TPB-UAM

WATERSTONE MORTGAGE

CORPORATION,

Defendant.

/

ORDER GRANTING IN PART AND DENYNG IN PART “WATERSTONE

MORTGAGE CORPORATION’S MOTION TO EXCLUDE OR LIMIT

PLAINTIFF’S EXPERT TESTIMONY ON DAMAGES”

This matter is before the Court on Defendant “Waterstone Mortgage

Corporation’s Motion to Exclude or Limit Plaintiff’s Expert Testimony on Damages,”

filed on February 6, 2024. (Doc. 132). Plaintiff Mutual of Omaha Mortgage, Inc.

responded in opposition on February 13, 2024. (Doc. 133). Upon review of the

motion, response, court file, and record, the Court finds as follows:

Background

The parties in this case are competitors in the residential mortgage business.

The dispute before this Court stems from an allegedly unlawful scheme by

Defendant Waterstone Mortgage Corporation to steal three of Plaintiff Mutual of

Omaha’s office branches. In the amended complaint, Plaintiff alleges that

Defendant unlawfully solicited and hired over 60 of Plaintiff’s employees from its

Tampa and Daytona branches to gain access to Plaintiff’s confidential and trade

secret information. Plaintiff claims that the mass exodus of employees and theft of

protected information caused Plaintiff to shut down those branches.

Plaintiff asserts claims for the misappropriation of trade secrets under the

Defend Trade Secrets Act, 18 U.S.C. § 1836 (Count I) and Florida Trade Secrets Act

(Count II), tortious interference with contract (Count III), and aiding and abetting

breach of fiduciary duty (Count IV). Initially, it must be noted that the contracts at

issue here did not preclude employees from leaving their employment with Mutual

of Omaha and going to work for a competitor such as Waterstone. The contracts

did, however, preclude former Mutual of Omaha employees from soliciting current

Mutual of Omaha employees to leave their employment, and the contracts

precluded former Mutual of Omaha employees from using confidential information

in any new employment relationships. Ultimately, the focus of this case is not

employees leaving Mutual of Omaha and going to work for Waterstone. Instead,

the focus is former Mutual of Omaha employees actively soliciting current

employees to leave Mutual of Omaha which, thereby, according to Mutual of

Omaha, caused it to shut down three branches.

As this case has been litigated, the parties have developed widely divergent

views on the amount of damages that may be legally recoverable. On one hand,

Plaintiff has argued for a damages model that would award damages for lost profits

going several years into the future since, according to this argument, Defendant

essentially destroyed Plaintiff’s business by stealing all of its employees which, in

turn, resulted in Plaintiff having to shut down three branch offices. Based on this

theory, Plaintiff has suggested a damages model that includes numbers as high as

$28 million dollars. On the other hand, Defendant has argued, for a variety of

reasons, that the amount of damages that it is legally entitled to recover is a much

smaller number. Specifically, Defendant maintains that the amount of lost profits

damages should not exceed the one-year duration of the restrictive covenant at

issue here. In connection with this issue, Plaintiff recently provided a stipulation

that it would not seek damages for lost profits beyond thirty months of the date its

former employees left their employment with Plaintiff. (Doc. 144).

Legal Standard

Expert Testimony

An expert witness may testify in the form of an opinion if “(a) the expert's

scientific, technical, or other specialized knowledge will help the trier of fact to

understand the evidence or to determine a fact in issue; (b) the testimony is based

on sufficient facts or data; (c) the testimony is the product of reliable principles and

methods; and (d) the expert has reliably applied the principles and methods to the

facts of the case.” Fed. R. Evid. 702; see also Daubert v. Merrell Dow Pharm., Inc.,

509 U.S. 579, 597 (1993). “The party offering the expert testimony bears the burden

of establishing, by a preponderance of the evidence, the expert's qualification,

reliability, and helpfulness.” Payne v. C.R. Bard, Inc., 606 F. App’x 940, 942 (11th

Cir. 2015) (citing United States v. Frazier, 387 F.3d 1244, 1258 (11th Cir. 2004) (en

banc)).

Functioning as a gatekeeper, the district court plays an important role by

ensuring that all expert testimony is reliable and relevant. Rink v. Cheminova,

Inc., 400 F.3d 1286, 1291 (11th Cir. 2005). Although Daubert references specific

factors for the district court to consider when evaluating relevancy and reliability,

the inquiry is a flexible one, focusing on the principles and methodology employed

by the expert, not on the conclusions reached. Chapman v. Procter & Gamble

Distrib., LLC, 766 F.3d 1296, 1305 (11th Cir. 2014); see also Hanna v. Ward Mfg.,

Inc., 723 F. App'x 647, 649-50 (11th Cir. 2018) (outlining the criteria for the

admissibility of expert witness testimony). Essentially, the Court is simply asked to

determine if the evidence “rests on a reliable foundation and is relevant.” Daubert,

509 U.S. at 597.

In that vein, the Court’s gatekeeper role under Daubert and Rule 702

requires the Court to ensure that a jury is not presented with expert testimony that

applies a legally incorrect measure of damages. See, e.g., Children’s Broad. Corp. v.

The Walt Disney Co., 245 F.3d 1008, 1017-18 (8th Cir. 2011) (affirming district

court’s conclusion that a new trial was required because the court should have

excluded expert damages testimony under Daubert to avoid “exposing the jury to an

exaggerated sum of damages”); Skypoint Advisors, LLC v. 3 Amigos Productions

LLC, 585 F. Supp. 3d 1326, 1332 (M.D. Fla. 2022) (excluding expert testimony as

unreliable because it applied the wrong damage measure); Fidelitad, Inc. v. Insitu,

Inc., No. 13-CV-3128-TOR, 2016 WL 7508843, at *5 (E.D. Wash. July 8, 2016)

(“Consequently, Ms. Barrick's expert testimony is not relevant, because it relies

upon the wrong measures to determine damages as to Fidelitad's unjust enrichment

claim, and thus, cannot be properly applied to the facts in issue.”).

In the factual context of contractual noncompetition litigation disputes such

as this, case law analyzing the measure of damages a plaintiff may legally recover is

not well developed. Similarly, there are very few reported opinions analyzing the

measure of damages recoverable for tortious interference in this sort of factual

context.1 Aside from the general rules relating to the purpose of damage awards

and the prohibition on speculative awards, there are few bright lines applicable

across the board, and decisions allowing or precluding particular approaches to

damages tend to be very case-specific and fact-specific.

Analysis

Plaintiff supports its claim for lost profits primarily with the testimony of two

witnesses – corporate representative Jeff Gennarelli and rebuttal expert Candice

Rosevear. Defendant raises several challenges to the damages models, which the

Court addresses in turn.

Measuring Damages Generally

Whether a proposed measure of damages is proper in a particular case is a

question of law for the court. See, e.g., Asset Mgmt. Holdings, LLC v. Assets

Recovery Ctr. Investments, LLC, 238 So. 3d 908, 911 (Fla. 2d DCA 2018) (“Whether

1 The Court has examined this issue in the context of a motion in limine, a motion for

summary judgment, and now, a Daubert motion. Previously, the Court requested

additional briefing on the damages issue and directed the parties to research the issue in

depth, including cases outside of Florida and the Eleventh Circuit. Despite their best

efforts, very little case law bearing directly on the damages issues presented here was

discovered by either party.

the trial court applied the correct measure of damages on a breach-of-contract claim

is a question of law that this court reviews de novo.”); RKR Motors, Inc. v.

Associated Unif. Rental & Linen Supply, Inc., 995 So. 2d 588, 591 (Fla. 3d DCA

2008) (“The trial court's determination as to the proper methodology to be used in

Florida to calculate lost profits due to a breach of contract is strictly a legal issue.

Thus, our standard of review is de novo.”). The Court’s gatekeeper role under

Daubert and Rule 702 requires it to ensure that a jury is not presented with expert

testimony that applies a legally incorrect measure of damages. When asking a jury

to award damages, a plaintiff is not permitted to argue for whatever amount of

money it wants. Rather, the amount of money a plaintiff requests from a jury must

be rooted in the law – the request must have a legal basis.

Speculative Nature of Lost Profits

Defendant seeks to exclude the lost profits damages testimony of Gennarelli

and Rosevear because both purported witnesses rely on speculative testimony that

will confuse a jury. Gennarelli projects lost profits damages for eighteen months in

the amount of $4,440,002, and Rosevear projects lost profits damages for up to ten

years in the amount of $28,000,000. Defendant argues that Plaintiff has no

evidence to factually support these time periods, rendering the opinions speculative

and improper for a jury to rely upon in making a damages determination. More

specifically, Defendant argues that there is no evidence the employees would have

stayed with Plaintiff after the managers resigned and would have continued

working with Plaintiff for eighteen months (as Gennarelli assumes) or ten years (as

Rosevear assumes), particularly in light of the fact that the non-solicitation

agreement was limited to one year.

The crux of Defendant’s argument is that any lost profits damages that

exceed the duration of a restrictive covenant – in this case, one year – are

inherently speculative. But the Court does not believe that it is quite so simple, and

there is no bright-line rule limiting damages in this way. As previously noted, the

case law analyzing damages in this context is not well developed. But one thing is

clear – the amount of damages awarded must not be speculative. So the Court must

consider what measure of damages is appropriate here and can be proven without

speculation.

Under Florida law, damages in tort are aimed at “restor[ing] the injured

party to the position it would have been in had the wrong not been committed.”

Totale, Inc. v. Smith, 877 So. 2d 813, 815 (Fla. 4th DCA 2004) (quoting Nordyne,

Inc. v. Fla. Mobile Home Supply, Inc., 625 So. 2d 1283, 1286 (Fla. 1st DCA 1993)).

Tort damages are not limited to those within the reasonable contemplation of the

parties, but nevertheless must represent the “natural, proximate, probable or direct

consequence of the [tortious] act” as opposed to consequences deemed to be too

speculative or remote. Taylor Imported Motors, Inc. v. Smiley, 143 So. 2d 66, 67-68

(Fla. 2d DCA 1962).

Whether in contract or tort, the plaintiff must prove that the breach of duty

proximately caused the alleged damage and provide “some standard by which the

amount of the damages may be adequately determined.” W.W. Gay Mech.

Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348, 1351 (Fla. 1989). The

amount need only be established with such “certainty as satisfies the mind of a

prudent and impartial person.” Id. In other words, “Florida law does not require

exactitude where it is certain that substantial damage has been caused; a

reasonable basis in the evidence for computation will suffice.” Marshall Auto

Painting & Collision, Inc. v. Westco Eng'g, Inc., No. 6:02-cv-109-Orl-22KRS, 2003

WL 25668018, at *12 (M.D. Fla. May 8, 2003) (quoting Nat'l Indus., Inc. v. Sharon

Steel Corp., 781 F.2d 1545, 1548 (11th Cir.1986)).

It is well-established in Florida that “lost profit damages, like all damages,

cannot be speculative and must be proved with reasonable certainty.” Nebula Glass

Intern., Inc. v. Reichhold, Inc., 454 F.3d 1203, 1213 (11th Cir. 2006); see Royal

Typewriter Co., a Div. of Litton Business Systems, Inc. v. Xerographic Supplies

Corp., 719 F.2d 1092, 1105 (11th Cir. 1983) (To recover lost profits, a plaintiff must

prove damages “with reasonable certainty.”). To that end, Florida courts have

recognized that although not impossible, proving lost profits is often challenging.

Nebula Glass Intern., 454 F.3d at 1213. For example, when an individual or entity

has a right to terminate a contract, future events may be too uncertain and

speculative to support a lost profits award. See Sun Ins. Marketing Network, Inc. v.

AIG Life Ins. Co., 254 F. Supp. 2d 1239, 1247 (M.D. Fla. Mar. 27, 2003). The

plaintiff does not need to “show the precise amount of damages so long as the trier

of fact can arrive at an intelligent estimate without speculation or conjecture.”

Xerographic Supplies Corp., 719 F.2d at 1105. On the other hand, “Florida law

requires that assumptions use to support the conclusions be reasonably certain, not

mere best case scenario predictions.” Sun Ins. Marketing Network, Inc., 254 F.

Supp. 2d at 1247.

In their lost profits analyses, both Gennarelli and Rosevear appear to assume

that the Tampa and Daytona branches would have otherwise continued operating

into perpetuity but for Defendant’s alleged misconduct. Neither Gennarelli nor

Rosevear point to an objective factor or reason for the time periods over which they

projected future lost profits – 18 months and 10 years, respectively.

Although both Gennarelli and Rosevear appear to be qualified to render

damages opinions, their opinions are suspect because they do not identify any

evidentiary support for the time duration included in their opinions. The case law

indicates that Florida courts carefully scrutinize the time duration component of

future lost profit damages models. Indeed, courts have rejected lost profit damages

models as speculative when there is no objective factual basis for the time duration

component. See Florida Virtual School v. K12, Inc., No. 6:20-cv-2354-GAP-EJK,

2023 WL 6294214, at *2-3 (M.D. Fla. Aug. 25, 2023) (excluding lost profits opinion

as entirely speculative because of lack of evidentiary support and noting absurdity

of ten-year extrapolation of lost profits damages); Whitby v. Infinity Radio Inc., 951

So. 2d 890, 898 (Fla. 4th DCA 2007) (concluding that expert’s calculation of lost

profits damages for five-year period was speculative where he was unable to

articulate any justification for use of the five-year period); see also Multimatic, Inc.

v. Faurecia Interior Sys. USA, Inc., 358 F. App’x 643, 653-55 (6th Cir. 2009) (district

court did not err excluding as unduly speculative testimony from expert that

attempted to calculate lost profits over a ten-year time period rather than a five-

year timeframe); cf. Packgen v. Berry Plastics Corp., 847 F.3d 80, 87-88 (1st Cir.

2017) (concluding that expert’s ten-year loss period when calculating lost profits

was based on sufficient factual support); Randy’s Studebaker Sales, Inc. v. Nissan

Motor Corp. in U.S.A., 533 F.2d 510, 518-19 (10th Cir. 1076) (expert’s calculation of

lost profits not too speculative where expert had some evidentiary basis for decision

to use 10-year period for projection).

Even if, as Plaintiff has indicated, Gennarelli and Rosevear were neither

expected nor retained to opine on the appropriate duration of future lost profits,

their lost profits damages calculations must still have some evidentiary support as

to a time component before they can be submitted to a jury. There certainly might

be evidence in the case that Gennarelli and Rosevear could rely upon, beyond their

own speculative opinions, to establish a time component. However, it is not clear

that Plaintiff has identified any such evidence on this specific point. The durational

aspect of lost profits is not simply a question of fact for the jury – there must be

some evidence to create an issue of fact for the jury to determine.

In an abundance of caution, and considering the recent stipulation regarding

damages, the Court will not eliminate Plaintiff’s future lost profits claim from the

case at this time. However, if after presenting its case-in-chief, Plaintiff has not

provided “some standard” for the time duration component of its future lost profits

damage models the Court will, pursuant to Fed. R. Civ. P. 50, eliminate this claim

from the case and not permit Plaintiff to ask the jury for an award of future lost

profits as a measure of damages. To reiterate, Florida law does not permit a

plaintiff to ask a jury for future lost profits without “some standard” for the jury to

determine the length of time over which future lost profits should be awarded.

Loan Volume Attributable to Former Branch Managers

Defendant argues that any damages awarded must exclude the loan volume

attributable to the former branch managers because they were free to leave their

employment at any time. In response, Plaintiff claims that damages including the

loan volume are proper because the damages are not exclusively about the branch

managers’ departures – the case is about Defendant’s decimation of the entirety of

Plaintiff’s business operations in Florida.

The models that Plaintiff proposes to present to the jury would award the

value Plaintiff lost by virtue of the branch managers leaving Plaintiff to join

Defendant. But their employment agreements did not preclude the managers from

leaving Plaintiff and moving to Defendant and thereafter competing with Plaintiff

in generating new business. It was not a breach of contract or a tort for them to do

so.

Accordingly, the significant value lost to Plaintiff due to the branch manager

departures does not flow from the alleged breaches and cannot legally constitute a

component of the damages awardable to Plaintiff if it proves its case. Awarding

damages to Plaintiff that include the loans attributable to the branch managers

does not put Plaintiff in the same position it would have been in but for the alleged

breaches and torts – to the contrary, it would impermissibly put Plaintiff in a better

position by awarding Plaintiff the value of the branch managers services as a

component of damages when those individuals were free to leave Plaintiff at any

time without breaching any contracts or duties. Plaintiff does not offer any logical

explanation why it is legally entitled to be compensated for the loss of the branch

managers when those individuals were free to leave. And presenting evidence

about damages that include loan volume attributable to the branch managers would

be confusing to a jury. Consequently, Defendant’s motion is granted as to this

ground.

Inclusion of Paramus Branch

Defendant contends that Plaintiff cannot seek damages based on the closure

of the Paramus, New Jersey, branch because the closure of that branch did not

involve any actionable wrongdoing. Notably, although the Paramus branch

reported through Chris Smith and John Utsch, the Tampa managers, the Paramus

branch also had its own local managers. Those local managers considered staying

with Plaintiff, but then left several weeks after the Tampa resignations.

In a footnote, Plaintiff appears frustrated that Defendant continues to insist

that damages associated with the Paramus branch should be excluded. As

explanation for inclusion, Plaintiff has indicated that the numbers for Paramus

cannot be separated from Tampa because the branches operated on the same profit

and loss statements. This position is not well taken. Plaintiff has failed to provide

a sufficient basis for including damages associated with the Paramus branch in this

case. Defendant’s motion is granted as to this ground.

Hypothetical Models and “Reality”

Finally, Defendant argues that both the Gennarelli and Rosevear models are

based on “hypothetical projections that ignore reality.” Defendant argues that it is

simple enough to determine lost profits damages by looking at how the Tampa and

Daytona branches actually performed at Waterstone. Defendant also takes issue

with some of the data used in the models. These arguments go toward the weight of

the evidence rather than admissibility, and Defendant may cross-examine

Plaintiff's witnesses on these and other issues. Defendant’s motion is denied as to

this ground.

Accordingly, it is

ORDERED, ADJUDGED, and DECREED:

(1) Defendant “Waterstone Mortgage Corporation’s Motion to Exclude or

Limit Plaintiffs Expert Testimony on Damages” (Doc. 132) is GRANTED

IN PART and DENIED IN PART, as set forth herein.

DONE and ORDERED in Chambers, in Tampa, Florida, this 29th day of

March, 2024.

ble fe

~~ oe C

-TOMBARBER =———C‘C:

UNITED STATES DISTRICT JUDGE

Page 13 of 13