The opinion
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TELEBRANDS CORP., )
)
Plaintiff, ) Case No. 18-CV-06318
)
v. ) Judge Sharon Johnson Coleman
)
MY PILLOW, INC., )
)
Defendant. )
MEMORANDUM OPINION AND ORDER
Plaintiff Telebrands Corporation (“Telebrands”) filed a second amended complaint against
defendant My Pillow, Inc. (“My Pillow”) alleging breach of contract, equitable estoppel, and
conversion. Defendant filed an amended counterclaim alleging fraud. Plaintiff moves to strike and
exclude the testimony of defendant’s expert witness. For the reasons set forth below, plaintiff’s
motion to strike [102] is denied and motion to exclude [99] is granted in part and denied in part.
I. Background
In May 2012, defendant and plaintiff entered into a license agreement (“Agreement”) for
plaintiff’s pillow products. The Agreement gave defendant the right to market the products directly
to consumers, while plaintiff had the exclusive right to market and distribute the products in North
American brick and mortar retail stores and their associated online outlets. The Agreement stated:
The term of the Agreement shall be for a period of one year and shall be automatically
renewed for successive one year terms provided unit orders or sales of Current Product shall
have reached at least 1,000,000 during the immediate prior year of the term of this
Agreement. All units ordered or sold by Telebrands in excess of 1,000,000 in any given year
shall be attributed to the next succeeding term. If, during any renewal term of this
Agreement, Telebrands elects not to sell Current Product to a specific retailer, then upon My
Pillow's written request, Telebrands shall consent to My Pillow selling Current Product to
such specific retailer.
Dkt. No. 1, Compl. Ex. 1, at 5. The Agreement also stated that it would automatically terminate if
plaintiff failed to order at least 200,000 units before November 30, 2012 (i.e., the first six months of
the contract). Id. at 3. The Agreement further provided that the parties would attempt to negotiate
a more extensive agreement within 60 days, and if they did not enter a more extensive contract, the
Agreement would remain binding and in full force and effect. The parties were unable to complete
a more extensive agreement after numerous extensions of the 60-day deadline.
Plaintiff purchased fewer than 1,000,000 units in the May 2013 contract year and in the
following year (May 2013 to May 2014). On May 20, 2014, defendant’s CEO Mike Lindell emailed
plaintiff’s representative Bala Iyer:
I am following up on the agreement. As you know, the current License Agreement will end
on May 30 because sales did not hit the 1,000,000 mark. I would like to set up a time to meet
with you Mark Jim and Wayne to put together a new agreement. We should try to get the
new agreement in place before the current one ends at the end of this month. Please give me
a call. Mike.
Dkt. No. 1, Compl. Ex. 2, at 1.
Iyer does not recall discussing this email with Lindell or others at Telebrands. The parties
did not ultimately enter into a new agreement, but plaintiff continued to sell the product. Because
of the continued sale of the product, communications between the parties, and the course of dealing
after May 2014, Iyer thought the Agreement was still in place despite continually missing the
1,000,000 unit requirement. Iyer did not send any written confirmation or expression of his belief
that the Agreement was still in place, believing such a writing to be unnecessary. Iyer also did not
discuss with anyone at Telebrands whether the Agreement was going to end at the end of May 2014.
After May 2014, Iyer and My Pillow did not discuss the 1,000,000 unit renewal clause. Plaintiff
continued to sell the product for four years.
Lindell testified that he thought the Agreement ended in 2014 and that the parties then
entered individualized purchase orders for each buy. Plaintiff argues that Lindell may currently
believe the Agreement ended in 2014, but may not have believed that in 2014. Lindell also testified
that he did not think in 2014 that the Agreement automatically cancelled, but that he gave notice
that defendant would not renew through the May 20, 2014 email. Defendant’s Director of
Accounting and later Vice President of Finance, Kim Rasmussen, sent multiple emails to plaintiff
appearing to rely on the Agreement after 2014. For example, Rasmussen emailed Telebrands’
employees to “wire the money today per our agreement” (October 2014), “wire the 20% down
payment…[t]he agreement is that we receive a 20% deposit with each Purchase Order” (December
2014), “wire[] every Thursday and Friday or we will require them within 24 hours as our agreement
states” (August 2016), “[o]ur Agreement is that Telebrands will pay their invoice within 24 hours”
(May 2017), and “[w]e agreed to Tuesdays and Thursdays rather than ‘within 24 hours of leaving our
dock’ which is our terms” (August 2018). Dkt. 125, Def.’s Resp. to Pl.’s Statement of Additional
Facts, at 5-11.
During meetings of defendant’s board of directors, various executives referred to the
Agreement ending in 2014. For example, the board mentioned on April 29, 2014 that the
Agreement “expires on May 30th because Bala will not hit agreement of 1,000,000 units.”
Defendant’s Response to Plaintiff’s Statement of Additional Facts, Ex. 4. During a board meeting
in 2018, the board mentioned that “Mike had a God dream that told him to get rid of Telebrands”
and “[f]ound that contract expired in 2014.” Dkt. 125, Def.’s Resp. to Pl.’s Statement of Additional
Facts, at 21.
After May 2014, defendant, with plaintiff’s knowledge, began selling directly to certain
retailers, truck stops, hardware stores, travel stores, and airports. Plaintiff also reached 1 million
units during the May 2015 to May 2016 year. Then, plaintiff’s negotiations with retail clients resulted
in the product’s sales at Walmart, Kohl’s, Bed Bath & Beyond, and JC Penney. At some point in
2016, the parties changed their shipping methods to a dropship structure. With the new method,
defendant would dropship items to retailers and plaintiff would pay defendant for the dropshipping
costs rather than defendant shipping items to plaintiff and plaintiff shipping to the retailers. Plaintiff
did, in fact, pay for the dropshipping materials (boxes and labels).
Over the years that plaintiff sold defendant’s products, plaintiff’s retailers purchased My
Pillow “ad words,” which would cause those retailers' advertisements to show up earlier in search
engines when “My Pillow” or similar words were searched, instead of My Pillow’s own website.
Defendant contends that while plaintiff was selling its products, plaintiff agreed to monitor and ask
its retail clients to refrain from false advertising of the product and purchasing My Pillow ad words
on search engines. Plaintiff argues that it did not agree to do so, but only responded to specific
instances of ad words concerns by defendant as a good business partner. Defendant expressed to
plaintiff in March 2013 that they believed they were losing money because of ad words. In March
2016, Lindell told Iyer that defendant would not sell to plaintiff if the ad word issue was not
addressed. Iyer responded to other Telebrands employees regarding this email and noted that he
had told Lindell that plaintiff would not buy its own ad words relating to defendant. Telebrands
drafted a written agreement requiring retail clients to stop purchasing ad words and threatening to
stop selling if a retailer did not comply, but Iyer could not recall which retailers this agreement was
sent to and whether any retailers signed it.
On August 21, 2018, defendant told plaintiff that it was discontinuing their relationship and
would not accept any new purchase orders. Plaintiff disputed the termination. In response,
defendant claimed that the Agreement did not require a notice of termination and that the
Agreement automatically terminated once plaintiff did not order 1,000,000 units. Defendant sent
another letter on August 28, 2018, referencing the ad words issue and again stating that it would not
accept new purchase orders.
At the time the parties’ business relationship terminated in August 2018, defendant had
certain labels and boxes containing its artwork and logo that it had received from a third-party
vendor, Minnesota Corrugated. Plaintiff claims that it owned these materials, which it had paid for,
and the materials could only be used to dropship product purchased by plaintiff. Plaintiff and
defendant negotiated a draft agreement for the purchase of the subject boxes and labels, but the
agreement was never signed. After defendant terminated the relationship, plaintiff demanded
payment for the boxes but did not demand the return of boxes that defendant had already used.
Lindell asked a My Pillow employee, Robert Sohns, to put together an inventory of plaintiff’s boxes
and labels to send to plaintiff. Sohns sent this list, titled “Telebrands Inventory,” to Iyer on October
4, 2018.
After the business relationship between plaintiff and defendant ended, plaintiff sued
defendant. After this Court dismissed some claims, plaintiff brought an amended complaint for
breach of contract, equitable estoppel, and conversion. Defendant countersued for fraud.
Defendant denies wrongdoing and moves for summary judgment on plaintiff’s amended complaint.
II. Plaintiff’s Motion to Strike
Initially, the Court addresses plaintiff’s motion to strike. John Bone was retained by
defendant as a damages expert on September 3, 2020 (eleven days prior to the fact discovery
deadline). After consulting with Bone, defendant determined that the most accurate way to perform
an internet ad words damages calculation was to examine defendant’s “cost per click” (“CPC”) or
the Google ad words that it purchases, as well as its conversion rate for those ad words. Bone
testified that plaintiff’s actions resulted in a higher CPC (ad words are more expensive to purchase)
and a lower conversion rate (the percentage of people that click on defendant’s advertising and end
up buying directly from defendant’s website). To perform the damages calculation, Bone relied on
two spreadsheets containing data which defendant gathered from various sources and documents
upon Bone’s request. Plaintiff seeks to preclude the use of these spreadsheets and strike Bone’s
testimony relying upon these spreadsheets, arguing that the spreadsheets were not timely produced
during the fact discovery period and were withheld until defendant served Bone’s expert disclosures.
Defendant contends that the spreadsheets did not exist until Bone requested that the information
therein be compiled for the purposes of his damages analysis and that the data contained in the
spreadsheets is not kept in the ordinary course of defendant’s business.
a. Legal Standard
Under Federal Rule of Civil Procedure 26(a), a party must disclose “all documents,
electronically stored information, and tangible things that the disclosing party has in its possession,
custody, or control and may use to support its claims or defenses, unless the use would be solely for
impeachment.” Fed. R. Civ. P. 26(a)(1)(A)(ii). However, “a party may not discover documents and
tangible things that are prepared in anticipation of litigation or for trial by or for another party or its
representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or
agent).” Fed. R. Civ. P. 26(b)(3)(A). When considering whether a document was prepared in
anticipation of litigation, a court must determine if “in light of the nature of the document and the
factual situation in the particular case, the document can fairly be said to have been prepared or
obtained because of the prospect of litigation.” Binks Mfg. Co. v. Nat'l Presto Indus., Inc., 709 F.2d
1109, 1118–19 (7th Cir. 1983) (quoting 8 Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure, § 2024) (emphasis in original). A district court has broad discretion to determine
whether a Rule 26(a) violation is justified or harmless. Mid-Am. Tablewares, Inc. v. Mogi Trading Co.,
100 F.3d 1353, 1363 (7th Cir. 1996) (citation omitted).
b. Analysis
Plaintiff argues that the spreadsheets contain data which defendant uses to support its fraud
claim and thus, pursuant to Rule 26(a) and plaintiff’s discovery request, this data should have been
produced prior to the close of fact discovery. Plaintiff also argues that the Northern District of
Illinois Mandatory Initial Discovery Pilot (“MIDP”) Standing Order requires that the data be
produced during discovery. This Court, however, discontinued its participation in the MIDP as of
December 2, 2019. As the present discovery dispute arose after that point, the MIDP is not
applicable.
Defendant contends that the spreadsheets were created, and the underlying data was
collected, per Bone’s request and specifically for assisting in damages calculations. Defendant
asserts that the information collected, namely data related to its “cost per click,” “conversion rate”
metrics, and cost of goods sold on a unit-by-unit basis, is not information which is kept in the
ordinary course of business. Rather, defendant requested this information from third-party sources
specifically for the purpose of litigation. Defendant contends that because Bone was a consulting
expert, his work was subject to work product protection up until the point that he was disclosed as a
testifying expert. Work product protection is extended to “material prepared by agents for the
attorney as well as those prepared by the attorney himself.” Urban 8 Fox Lake Corp. v. Nationwide
Affordable Hous. Fund 4, LLC, 334 F.R.D. 149, 155 (N.D. Ill. 2020) (Cole, J.) (quoting U.S. v. Nobles,
422 U.S. 225, 238 (1975)).
Documents prepared in anticipation of litigation are protected by the work product doctrine
given that they are “prepared or obtained because of the prospect of litigation.” Binks Mfg., 709 F.2d
at 1119. Documents generated in the ordinary course of a party’s business operations, however, are
not protected by the work product doctrine. See Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 152
F.R.D. 132, 135–36 (N.D. Ill. 1993) (Bobrick, J.).
Defendant retrieved the ad words data from third-party sources at Bone’s request for the
purposes of the claim against plaintiff. The spreadsheets did not contain data that was maintained
nor accessed in the ordinary course of defendant’s business operations. Therefore, the spreadsheets
and underlying data were subject to work product protection by virtue of Bone’s role as a consulting
expert. Once Bone was disclosed as a testifying expert, defendant promptly produced the
spreadsheets and Bone’s expert disclosures. Since Bone prepared the spreadsheets for the purposes
of the litigation against Telebrands, the spreadsheets and their underlying data was subject to work
product protection at the time of discovery and defendant did not violate Rule 26(a). There is no
discovery violation, so the Court does not award Rule 37 sanctions.
III. Plaintiff’s Motion to Exclude
Plaintiff also moves to exclude Bone’s entire testimony under Federal Rule of Evidence 702
and Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Rule
702 and Daubert require district judges to act as gatekeepers to ensure that proposed expert
testimony is both reliable and relevant. Kirk v. Clark Equip. Co., 991 F.3d 865, 872 (7th Cir. 2021).
When determining reliability, the Court’s role is to assess if the expert is qualified in the relevant
field and to examine the methodology he used in reaching his conclusions. Timm v. Goodyear Dunlop
Tires North Am., Ltd., 932 F.3d 986, 993 (7th Cir. 2019). To be relevant, expert testimony must
“help the trier of fact to understand the evidence or to determine a fact in issue.” Fed. R. Evid. 702.
The expert’s proponent has the burden of establishing the admissibility of his opinions by a
preponderance of the evidence. Varlen Corp. v. Liberty Mutual Ins. Co., 924 F.3d 456, 459 (7th Cir.
2019).
Bone is a Managing Director of Stout Risius Ross, LLC, which is a financial advisory
services firm. He received a Bachelor’s in Business Administration from University of Michigan and
an MBA from the University Chicago Booth School of Business. He is a CPA and is also certified
in financial forensics (CFF).
Plaintiff challenges Bone’s qualifications and methodology. Pursuant to Rule 702 and
Daubert, courts ask whether an expert is qualified to answer specific questions, not just whether an
expert is generally qualified. United States v. Truitt, 938 F.3d 885, 889 (7th Cir. 2019). ‘This expertise
comes not just from formal education, but can be based on knowledge, skill, training, or education.
United States v. Brown, 973 F.3d 667, 703 (7th Cir. 2020). Plaintiff claims that Bone, as a damages
expert, is unqualified to opine on whether plaintiffs actions caused defendant’s CPC or conversion
rate to change.
To the extent Bone purports to show causation between plaintiffs actions and defendant’s
CPC and conversion rate changes, that 1s impermissible as it is a legal conclusion. See Good Shepherd
Manor Foundation, Inc. v. City of Momence, 323 F.3d 557, 564 (7th Cir. 2003). Causation is a key element
of the fraud My Pillow claims Telebrands committed. Much of Bone’s report is devoted to the
causation issue and, as plaintiff points out, makes it seem as if Bone is being offered as both a
subject matter and damages expert rather than simply a damages expert. Further, plaintiff notes that
Bone fails to consider other external factors that could have caused a lower conversion rate, such as
Lindell’s publicity. ‘The Court thinks it extremely possible and, in fact, likely that Lindell’s striking
notoriety may have impacted whether consumers ultimately chose to buy his products. Bone’s
failure to discuss such key factors make it even more obvious to the Court that he ts only qualified as
a damages expert and cannot opine on causation. But as an established financial expert, Bone can
provide his opinion on damages assuming defendant establishes lability. See Sys. Dev. Integration,
LLC v. Computer Seis. Corp., 886 F. Supp. 2d 873, 882 (N.D. Ill. 2012).
IV. Conclusion
Plaintiffs motion to strike is dented and motion to exclude is granted in part and denied in
part. IT IS SO ORDERED. 2 ;
Date: September 9, 2021 Entered:
SHARON JOHNSON COLEMAN
United States District Court Judge