Kendall Dealership Holdings, LLC v. Warren Distribution, Inc.

WO IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
KENDALL DEALERSHIP HOLDINGS, )
LLC, )
)
Plaintiff, )
vs. )
)
WARREN DISTRIBUTION, INC., )
)
Defendant. )
_______________________________________)
)
WARREN DISTRIBUTION, INC., )
)
Third-Party Plaintiff, )
) No. 3:18-cv -0146-HRH
vs. )
)
ELECTRICAL COMPONENTS )
INTERNATIONAL, INC., and ELECTRICAL )
COMPONENTS CANADA, INC., )
)
Third-Party Defendants. )
_______________________________________)
O R D E R
Motion in Limine Regarding Steve Colt’s Testimony on Damages
Warren Distribution (“Warren”) moves this court in limine to strike portions of
Kendall Dealership Holdings (“Kendall”)’s expert witness Steve Colt’s report and to limit
his testimony.1 Kendall opposes this motion.2
1 Docket Nos. 249, 251-1, 281.
2 Docket No. 264.
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Background
This case arises from Kendall’s claims that approximately 8,000 engine block
heaters which it purchased from Warren were defective.3 Warren allegedly purchased the
engine block heaters from Electrical Components International and Electrical Components
Canada allegedly manufactured the heaters.4 The original PU140-00913 heater (“913
heater”) is the only heater that remains at issue. Based on this conduct, Kendall has
asserted various claims against Warren, including breach of contract, UTPA, breach of the
implied warranty of merchantability, and breach of the implied warranty of fitness for a
particular purpose.5 In the course of this litigation, the parties have retained various expert
witnesses. Kendall has retained Dr. Steve Colt to opine on the amount of damages to
which Kendall is entitled for its purchase of defective block heaters from Warren.
Discussion
Warren contends that Kendall seeks to recover the direct cost of purchasing 7,943
block heaters.6 Kendall charged its customers for these heaters when it originally installed
them in their vehicles.7 Kendall also seeks to recover the “repair order” costs of the block
3 Order on Motion in Limine to Exclude Expert Testimony of Steve Roberts,
Docket No. 246.
4 Third Party Complaint at 3, ¶ 8, Docket No. 21.
5 Complaint, Exhibit A at 3-5, ¶¶ 16-37, Notice of Lodging of State Court
Documents, Docket No. 6.
6 Dr. Colt Expert Report, Exhibit C at 3, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
7 Blewett Deposition, Exhibit B at 3-4, 7, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
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heaters that Kendall contends were defective.8 Kendall mailed 5,594 block heater recall
notices to customers.9 Dr. Colt estimated that between January and August 2018, Kendall
generated about 3,150 block heater repair orders, 2,433 for customer-owned vehicles and
717 for inventory vehicles.10 Additionally, Dr. Colt estimated that Kendall generated
1,382 repair orders between August 2018 and April 2019.11
Dr. Colt explains that Kendall generated repair orders for vehicles that received
various levels of block heater servicing, including for vehicles where the heaters required
no work, where they only required inspections, and where they required disabling,
removal, reinstallation, or replacement.12 Dr. Colt estimated that Kendall had fully
completed block heater recall work on about 1,600 of the vehicles for which Kendall had
generated block heater repair orders between January and August 2018.13 Kendall issued
monetary refunds to less than ten customers.14
Dr. Colt opined that of those vehicles for which Kendall generated repair orders
between January and August 2018, in those instances where Kendall had only disabled or
removed a block heater, and in some instances just inspected a heater, that Kendall had not
8 Dr. Colt Expert Report, Exhibit C at 4, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
9 Id. at 13.
10 Id. at 4.
11 Id. at 11-12.
12 Id. at 4-5.
13 Id. at 12-13.
14 Blewett Deposition, Exhibit B at 11, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
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completed work on those vehicles.15 Specifically, Dr. Colt opined that Kendall had not
completed work on 896 of these vehicles.16 Dr. Colt opined that on the low end, 672 of
these vehicles, or 75 percent, would return for block heater servicing.17 “The low estimate
of 75 [percent] reflects [his] understanding that Kendall will be actively following up with
the customers whose heaters were disabled or removed”, per a phone conversation with
Kendall’s counsel.18 He then opined that on the high end, “the logical upper bound of
these losses”, every single vehicle would return for servicing.19
Dr. Colt also opined that as of April 2019, there were 2,573 vehicles for which
notices had been mailed, but for which Kendall had not yet generated repair orders.20
Dr. Colt opined that, on the low end, 515 of these outstanding vehicles, or 20 percent,
would return for block heater servicing, “in [his] professional judgment based on
consideration of the pattern of returns so far.”21 He opined that on the high end, every
vehicle would return for servicing.22
Dr. Colt opined that the “[r]epair costs include the direct cost of technician and
service advisor time, plus the indirect costs of parts, admin, and support staff time, [as well
15 Dr. Colt Expert Report, Exhibit C at 12, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
16 Id. at 12-13.
17 Id. at 13.
18 Id.
19 Id.
20 Id.
21 Id. at 13-14.
22 Id. at 14.
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as] . . . the indirect costs of shop supplies and general overhead.”23 In his report, Dr. Colt
specifically accounts for the time that greeters, advisors, and technicians spent working on
a vehicle when in it came in for servicing.24 Dr. Colt valued the repair time at $130 per
hour, “which is the loaded or ‘burdened’ rate charged for repair work.”25 This rate
accounts “for the full cost of providing the service” and “the opportunity cost of tying up
repair services . . . that could otherwise generate revenue at that rate.”26 During Dr. Colt’s
deposition, he stated that he never received from Kendall any documents that showed that
they lost or turned away customers due to the recall, and that he never reviewed records
that showed that mechanics, advisors, or greeters worked extra hours as a result of the
recall.27
According to the affidavit of Grant Olson, the Alaska area general manager for
Kendall, over the last six years, all main line service department stalls were consistently
full, and rarely were any empty.28 Olson further states that “[b]ased on [his] observation,
following the recall notice issued by Kendall, [Kendall] had more customers coming in for
recall work than [they] had stalls available. If [they] did not have the recall work, the
stalls would be full of paying customers’ vehicles. The repair order records maintained by
23 Id. at 4.
24 Id. at 4, 7.
25 Id. at 4.
26 Id.
27 Dr. Colt Deposition, Exhibit A at 14-15, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
28 Affidavit of Grant Olson, Exhibit 2 at 2, Opposition to Motion in Limine
Regarding Dr. Steve Colt’s Testimony on Damages, Docket Nos. 264-2.
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Kendall confirm that the stalls were consistently full.”29 Olson further states that he
provided Dr. Colt with this information so that he could prepare his report.30
Warren now asks this court to limit Dr. Colt’s testimony in three ways. Warren
contends that Dr. Colt should not be allowed to testify regarding: (1) damages arising
from the cost of block heaters that Kendall resold to customers, unless it refunded those
customers; (2) damages for the replacement of 913-1 block heaters; and (3) lost oppor-
tunity costs.31 Kendall concedes that Dr. Colt is not allowed to testify regarding damages
arising from the replacement of any 913-1 heater, but argues that this limitation can just be
addressed in Dr. Colt’s testimony, and that he need not amend his report accordingly.32
Kendall opposes Warren’s first and third requested limitations.33
As a preliminary matter, damages arising from the replacement of the 913-1 heater
are no longer at issue. This court has found that the 913-1 heater was not defective.34
Thus, Dr. Colt may not testify regarding damages from the replacement of 913-1 heaters.35
The court turns to Warren’s contention that Dr. Colt should not be allowed to testify
about damages arising from the cost of block heaters that Kendall resold to customers,
unless it refunded those customers. Kendall contends that Dr. Colt properly measured
29 Id. at 2-3.
30 Id. at 3.
31 Docket Nos. 251, 281.
32 Docket No. 264.
33 Id.
34 Order on Motion for Summary Judgment, Docket No. 244.
35 The court assumes that Dr. Colt’s expert report will not be admitted at trial;
hence, there is no need for the report to be rewritten.
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Kendall’s damages by determining the cost of refunding Kendall for the defective heaters,
rather than by determining the cost of replacement heaters, and asserts that Kendall is not
attempting to secure a double recovery. Kendall misconstrues Warren’s argument.
Warren does not argue that Dr. Colt should not be able to testify that the refund price of
the heaters is an inappropriate manner by which to measure damages. Rather, Warren
argues that Dr. Colt should not be able to testify that Kendall is entitled to damages for any
block heater that it sold to customers where it did not subsequently refund the purchase
price to customers. Warren argues, for example, that Kendall is not entitled to damages
for block heaters it sold to customers and later disabled, nor for those heaters that it sold to
customers where those customers never brought in their vehicles for servicing, nor for any
vehicles for which Kendall never mailed a safety notice.36
Alaska law governs Kendall’s claims. Under Alaska Statute (AS) § 45.02.714(b),
“[t]he measure of damages for breach of warranty is the difference at the time and place of
acceptance between the value of the goods accepted and the value they would have had if
they had been as warranted, unless special circumstances show proximate damages of a
different amount.” Alaska law further provides that “[t]he purpose of awarding damages
for a breach of contract is to put the injured party in as good a position as that party would
have been had the contract been fully performed.” Guard v. P & R Enters., Inc., 631 P.2d
1068, 1071 (Alaska 1981) (citing McBain v. Pratt, 514 P.2d 823, 828 (Alaska 1973) and
Green v. Koslosky, 384 P.2d 951, 952 (Alaska 1963)). Thus, “[w]hile the wronged party
in a breach of contract suit is entitled to the benefit of his bargain, he is not entitled to
more than his actual loss.” Murray E. Gildersleeve Logging Co. v. N. Timber Corp.,
670 P.2d 372, 378 (Alaska 1983).
36 Docket No. 281.
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As Warren points out, this court considered a similar issue in its order on Kendall’s
motion in limine regarding Steve Roberts’ testimony.37 Therein, this court stated that if
Kendall “were allowed to recover the cost of engine block heaters it purchased from
Warren even if it never refunded that cost to its customers, [Kendall] would be getting a
double recovery. . . . [Kendall] would be paid the cost of the heater once when selling the
heater to its customers, then a second time in the form of damages from Warren.”38 And
this court further observed that the purpose of the special circumstances provision of AS
§ 45.02.741(b) is to prevent such double recoveries.39
As noted above, Kendall charged its customers for these heaters when it originally
installed them in their vehicles, and Kendall now seeks to recover the direct costs and the
repair order costs of the block heaters that it contends were defective. But as also noted
above, Kendall did not open a repair order on every vehicle in which it initially installed a
block heater, and only issued cash refunds on less than ten vehicles. To permit Kendall to
obtain damages for any heater for which Kendall did not generate a repair order, or for
which Kendall did not issue a refund, would be an impermissible double recovery under
Alaska law. But Kendall correctly points out that Warren’s request is ultimately too broad.
To prevent Kendall from presenting evidence on damages in every instance where it did
not issue a refund to a customer would be improper because in those instances where
Kendall generated one of various types of the block heater repair orders described above,
Kendall still may have incurred damages. In those instances, Kendall would not then be
37 Order on Motion in Limine Regarding Steve Roberts’ Testimony, Docket
No. 246.
38 Id.
39 Id.
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getting a double recovery. Thus, Kendall should be permitted to present Dr. Colt’s
testimony on damages for those vehicles where it generated a block heater repair order or
refunded the price thereof.40
Kendall also anticipates that it will at some time incur damages for many vehicles
for which repair orders have not been completed or generated. Warren contends that this
“ongoing theoretical liability . . . assuming there is one . . . cannot be the basis for
damages.”41 Under Alaska law, a lost profits award is improper “if it is the result of
speculation”; “lost profits must be proven with reasonable certainty.” Guard, 631 P.2d at
1071-72. This means that the trier of fact would “‘be able to determine the amount of lost
profits from evidence on the record and reasonable inferences therefrom’”. Erwin v.
Mendenhall, 433 P.3d 1090, 1095-96 (Alaska 2018) (quoting State v. Hammer, 550 P.2d
820, 824 (Alaska 1976)). Thus, in cases involving established businesses, courts have
looked to the business’ past profits as a sufficient “reasonably certain measure by which to
calculate a damage award.” Guard, 631 P.2d at 1072.
Dr. Colt estimates that on the low end, about 672 vehicles, or 75 percent of those
that have already generated block heater repair orders, will return at some future time for
additional block heater servicing. The 672 figure is based on Dr. Colt’s understanding,
following a conversation with Kendall’s attorney, that Kendall will “actively follow[] up”
with those customers who only had their heaters disabled or removed, and thus will require
40 Warren does not discuss whether Dr. Colt’s testimony properly considers any
potential differences in costs between the old and new heaters and the cost of disabling
the heaters alone, such that this court need not address the propriety of Dr. Colt’s
testimony in that respect.
41 Docket No. 281.
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additional block heater servicing.42 Dr. Colt also estimates that 515 vehicles, or 20 percent
of those that have not yet generated block heater repair orders, will later come in for ser-
vicing. As Dr. Colt explains in his report, the 515 figure is based in part on the percentage
of vehicles that received mailers and came in for block heater servicing between January
and August 2018 and on the types of services that they received. This 515 figure is based
on evidence in the record and is analogous to a review of past profits as a reasonably
certain measure by which to calculate damages. Kendall may present Dr. Colt’s damages
evidence on the low-end estimate of these vehicles that Kendall will have to service at a
future date. The jury will decide whether or not Dr. Colt’s estimate of future recall work
is reasonable.
However, Dr. Colt’s high-end estimates of both groups of outstanding vehicles –
that is, the estimates that 100 percent of the vehicles in these groups will require block
heater servicing in the future and the low end (672 vehicles) opinion – have no basis in the
record because there is no evidence that all outstanding vehicles will likely come in for
servicing. Kendall is also precluded from presenting damages evidence based on the high-
end service estimations because they are unduly speculative. Likewise, Kendall is
precluded from presenting damages evidence on any other unaccounted for vehicles, as
there is no evidence in the record suggesting that Kendall will incur damages from any
such vehicles.
Finally, this court turns to Warren’s third contention: that Dr. Colt should not be
permitted to testify regarding lost opportunity costs, or lost profits. Warren argues that
Dr. Colt should be precluded from testifying in this manner because such damages are not
42 Dr. Colt Expert Report, Exhibit C at 13, Motion in Limine Regarding Dr. Steve
Colt’s Testimony on Damages, Docket Nos. 249, 251-1.
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supported by any evidence in the record. Warren argues that such testimony would lack
foundation and confuse the jury. Warren contends that this testimony is therefore
inadmissible under Federal Rule of Evidence 702.
Warren specifically points out that Kendall has produced no evidence that any
employees worked extra hours as a result of the block heater recall; that Kendall has
produced no evidence that Kendall lost business or customers as a result of recall work;
and notes that Kendall seeks damages based on the time that not just mechanics, but also
greeters and service advisors, spent working on the recall. Kendall contends this request is
premature because Kendall’s evidence of lost opportunity costs will be supported by trial
testimony from Kendall employees, and supplies the affidavit of Kendall area manager
Grant Olson as an offer of proof. In reply, Warren argues that Kendall failed to provide
the basis of this damage calculation throughout discovery practice, and that Kendall’s
untimely affidavit still does not provide a basis for calculating lost revenue.
Federal Rule of Evidence 702, as modified in light of Daubert v. Merrell Dow
Pharm., 509 U.S. 579 (1993), delineates the circumstances under which certain witnesses
may testify as experts:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if:
. . .
(b) the testimony is based on sufficient facts or data . . . .
Generally, “‘the factual basis of an expert opinion goes to the credibility of the testimony,
not the admissibility, and it is up to the opposing party to examine the factual basis for the
opinion in cross-examination.’” Synergetics, Inc.v. Hurst, 477 F.3d 949, 955 (8th Cir.
2007) (quoting Bonner v. ISP Tech., Inc., 259 F.3d 924, 929 (8th Cir. 2001)). An expert’s
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opinion should only be excluded when it is so fundamentally unsupported that it cannot
assist the jury. Id. at 956 (quoting Bonner, 259 F.3d at 929-30). Thus, a district court does
not abuse its discretion when it excludes expert witness testimony that has “scant basis in
the record” and instead rests on speculation or “unsupported assumptions and unsound
extrapolation.” McGlinchy v. Shell Chem. Co., 845 F.2d 802, 807 (9th Cir. 1988).
As set forth above, Kendall has provided evidence regarding how much time
certain employees, including greeters, advisors, and technicians, spent working on a
vehicle when it came in for block heater servicing. Dr. Colt’s calculation of lost opportun-
ity costs is partially based on this data, which weighs in favor of permitting Dr. Colt to
testify regarding lost opportunity damages. But as Warren points out, and the record
shows, Dr. Colt reviewed no evidence that Kendall lost business as a result of the recall,
nor that Kendall had to pay employees overtime as a result of the recall. Even if this court
were to consider the assertions in Greg Olson’s untimely affidavit, there is still no
evidence that Kendall lost business as a result of the recall because the affidavit contains
no allegations that Kendall had to turn away customers as a result of recall work. This
weighs against permitting Dr. Colt to so testify.
But Kendall’s argument that the heretofore undisclosed factual basis of Dr. Colt’s
lost opportunity cost testimony will be offered via witness testimony at trial weighs the
most against permitting Dr. Colt to testify regarding lost opportunity costs. This effec-
tively constitutes a concession that the factual basis of Dr. Colt’s opinion on this form of
damages is currently deficient. This is so because if Dr. Colt intended to rely on this
undisclosed, additional information in forming his opinion on lost opportunity damages,
then under Federal Rule of Civil Procedure 26(a)(2)(B), (E), Dr. Colt was required to
provide this information in his report or timely supplement his report with such informa-
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tion. Dr. Colt did not do so, and it is now too late to do so. Expert discovery was long ago
closed.
Thus, Dr. Colt’s testimony regarding lost opportunity costs lacks sufficient factual
basis in the record, such that it constitutes improper speculation. Accordingly, Dr. Colt
may not testify regarding lost opportunity costs damages.
Conclusion
As set forth above, Warren’s motion in limine regarding Dr. Steve Colt’s testimony
is granted in part and denied in part.
DATED at Anchorage, Alaska, this 6th day of October, 2021.
/s/ H. Russel Holland
United States District Judge
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