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
Plaintiff’s Motion in Limine
Plaintiff moves to exclude certain opinions of defense expert, Steve Roberts.1 This
motion is opposed.2 Oral argument was not requested and is not deemed necessary.
1Docket No. 171.
2Docket No. 185.
ORDER – Plaintiff’s Motion in Limine - 1 -
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Background
This case arises out of claims that some 8,000 engine block heaters which plaintiff
Kendall Dealership Holdings, LLC, purchased from defendant Warren Distribution, Inc.
were defective. Plaintiff has asserted breach of contract, UTPA, breach of the implied
warranty of merchantability, and breach of the implied warranty of fitness for a particular
purpose claims against Warren.
One component of plaintiff’s economic damages is the direct cost of the alleged
defective block heaters it purchased from Warren. According to Warren, plaintiff is
seeking to recover the cost of purchasing 7,943 block heaters.
Another component of plaintiff’s economic damages is the repair costs associated
with either disabling or replacing the block heaters plaintiff contends were defective.
Plaintiff mailed out 5,594 safety notices advising customers to bring their vehicles in to
have the block heater disabled or repaired.3 Between January 8, 2018, and August 8,
2018, block heater repairs were done on 2,433 customer-owned vehicles and 717 vehicles
in plaintiff’s inventory.4 Stephen Colt, plaintiff’s damages expert, 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 as] the indirect costs of
shop supplies and general overhead.”5 Colt valued the repair time at $130 per hour,
“which is the loaded or ‘burdened’ rate charged for repair work.”6
3Colt Expert Report at 13, Exhibit 5, Motion in Limine Regarding Expert
Testimony on Damages, Docket No. 171.
4Id. at 4.
5Id.
6Id.
ORDER – Plaintiff’s Motion in Limine - 2 -
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Warren retained Steve Roberts of Veritas Forensic Accounting & Economics,
LLC, to evaluate plaintiff’s economic damage claims. Roberts has opined that it is not
reasonable nor reliable for plaintiff to base its damages on the “full cost of all 8,577 block
heaters” it purchased from Warren “without offering any evidence that the heaters have
been recovered and returned to Warren Distributing [sic] and that heater credits have
been paid to Kendall Toyota customers who purchased the faulty units.”7 Roberts has
also opined that an hourly rate of $130 for mechanics to do the heater recall repairs is not
reasonable, that a reasonable hourly rate for this work would be between $25 and $30 per
hour.8 Roberts opines that Colt has improperly “include[d] Kendall Toyota overhead
costs like those of lot boys and service writers whose costs do not change with recall
activities and whose cost was already recovered in a normal manner through daily
Kendall Toyota business operations and the original sale of the block heaters.”9 As for
lost profits, or lost opportunity costs, Roberts opines that “businesses typically can avoid
income loss” associated with a recall “through working overtime and/or working on
issues during slack time.”10 Roberts also opines that there is no evidence that shows that
plaintiff was “turning customers away due” to the recall repairs.11
Plaintiff now moves to exclude Roberts’ opinions regarding the direct cost of the
engine block heaters and the $130 hourly repair rate.
7Roberts Expert Report at 2, Exhibit 6, Motion in Limine Regarding Expert
Testimony on Damages, Docket No. 171.
8Id. at 6.
9Id. at 6-7.
10Id. at 7.
11Id.
ORDER – Plaintiff’s Motion in Limine - 3 -
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Discussion
Plaintiff first argues that Roberts’ opinion that plaintiff can only recover the cost
of engine block heaters that have been returned by customers is contrary to Alaska law.
Under Alaska law, which governs plaintiff’s claims, “[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[.]” AS 45.02.714(b). In addition, “[i]n a proper case any incidental and
consequential damages under AS 45.02.715 may also be recovered.” AS 45.02.714(c).
The Alaska Supreme Court has explained that
[d]irect economic loss may be said to encompass damage
based on insufficient product value; thus, direct economic
loss may be ‘out of pocket’- the difference in value between
what is given and received - or ‘loss of bargain’ - the
difference between the value of what is received and its value
as represented. Direct economic loss also may be measured
by costs of replacement and repair. Consequential economic
loss includes all indirect loss, such as loss of profits resulting
from inability to make use of the defective product.
Morrow v. New Moon Homes, Inc., 548 P.2d 279, 290 (Alaska 1976) (citation omitted).
Plaintiff argues that Roberts’ opinion that it can only recover damages for
defective block heaters returned by customers is contrary to AS 45.02.714 because the
block heaters had no economic value to plaintiff at the time they were accepted. Plaintiff
contends that if it had been aware that the block heaters were defective, it would not have
installed them in its customers’ vehicles. Thus, plaintiff insists that it can recover
damages for every block heater it purchased from Warren. As such, plaintiff argues that
ORDER – Plaintiff’s Motion in Limine - 4 -
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Roberts should be precluded from testifying that it “can only recover damages for heaters
returned by consumers.”12
As Warren points out, plaintiff has ignored the full language of AS 45.02.714(b).
AS 45.02.714(b), in its entirety, provides that “[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.” AS 45.02.714(b)
(emphasis added). Special circumstances may exist in this case, but not necessarily for
the reason opined by Roberts.
Roberts opines that plaintiff cannot recover damages for every block heater it
purchased from Warren because if plaintiff were allowed to do so, it would result in a
double recovery for plaintiff. In offering this opinion, Roberts makes reference to the
“substantial profit” that plaintiff made from selling the engine block heaters.13 Thus, in
response to the instant motion, Warren argues that special circumstances exist in this case
because plaintiff sold many of the block heaters at a profit and never returned the sales
price to its customers. Warren contends that plaintiff’s “damages must be modified by
deducting the profits made on resale” of the engine block heaters. Shoop v.
DaimlerChrysler Corp., 864 N.E.2d 785, 790 (Ill. Ct. App. 2007) (internal citation
omitted).
But the issue here is not plaintiff’s retention of its profits on the engine block
heaters it sold. The issue is that plaintiff is attempting to recover the cost of the engine
12Motion in Limine Regarding Expert Testimony on Damages at 4, Docket
No. 171.
13Roberts Expert Report at 4, Exhibit 6, Motion in Limine Regarding Expert
Testimony on Damages, Docket No. 171.
ORDER – Plaintiff’s Motion in Limine - 5 -
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block heaters twice. Plaintiff has sold most of the engine block heaters that it purchased
from Warren, and for many of those heaters, it has not had to refund the cost of the
heaters to its customers. If plaintiff were allowed to recover the cost of the engine block
heaters it purchased from Warren even if it never refunded that cost to its customers,
plaintiff would be getting a double recovery. Under that scenario, plaintiff would be paid
the cost of the heater once when selling the heater to its customers, and then a second
time in the form of damages from Warren. The special circumstances provision of
AS 45.02.741(b) is designed to prevent such double recoveries. Because Roberts’
opinion is, at its essence, an opinion that a double recovery is not allowed, his opinion is
not contrary to Alaska law, although it is also not a complete statement of Alaska law
since it appears to focus on plaintiff’s profits, rather than on the cost of the heaters.
Plaintiff next argues that Roberts’ opinion that plaintiff cannot recover its ordinary
hourly repair rate of $130, which includes overhead costs and lost profits or lost
opportunity costs, is contrary to Alaska law and should be excluded. “‘The goal of
contract damages is to place the nonbreaching party in as good a position as if the
contract had been fully performed.’” Central Bering Sea Fishermen’s Ass’n v. Anderson,
54 P.3d 271, 278 (Alaska 2002) (quoting Luedtke v. Nabors Alaska Drilling, Inc., 834
P.2d 1220, 1226 (Alaska 1992)). Plaintiff argues that if the block heaters had not been
defective, then it would not have had to disable or remove them from customers’ vehicles
free of charge. Plaintiff argues that its damages must include all necessary costs incurred
in performing the heater recall repair work, which includes the direct cost of the
mechanic’s time as well as indirect costs such as parts, administration, support staff, shop
supplies, and general overhead. Plaintiff insists that these indirect costs are part of its
“full cost” of providing repair services to replace the defective block heaters. In addition,
ORDER – Plaintiff’s Motion in Limine - 6 -
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plaintiff argues that lost profits or lost opportunity costs can be included in the $130
hourly rate so long as there is a reasonable basis for calculating such a loss. Plaintiff thus
argues that Roberts’ opinion that the $130 rate is not reasonable because it includes
overhead costs and lost profits is contrary to Alaska law and must be excluded.
Roberts’ opinion that the $130 rate is not reasonable is not contrary to Alaska law.
Roberts did not opine that overhead costs and lost profits could never be included in a
damage calculation, but rather that plaintiff has not produced any evidence that it had
increased overhead associated with the recall or that it lost profits or revenue as a result
of the recall.14 Roberts has opined that a rate of $25 to $30 per hour would put Kendall in
as good a position as it would have been had Warren not sold the defective block heater,
which is a proper way to measure damages under Alaska law for the claims that plaintiff
has asserted. Under Alaska law, “loss of profits damages” must “be reasonably
certain[.]” Erwin v. Mendenhall, 433 P.3d 1090, 1095–96 (Alaska 2018) (citation
omitted). Roberts is opining that plaintiff’s lost profits, or lost opportunity costs, that are
incorporated into the $130 rate, are not reasonably certain, thereby making the $130 rate
unreasonable.
Finally, in the conclusion of its opposition, Warren requests that the court, in
addition to denying the instant motion in limine, also hold that plaintiff “is not entitled to
recover lost opportunity costs without proof that it suffered lost opportunity damages
such as lost customers or sales” and that plaintiff “is not entitled to recover diminution in
value of the block heaters it purchased from Warren, given it resold those block heaters at
14Affidavit of Steve Roberts at 6, ¶ 17, Exhibit C, Opposition to Kendall’s Motion
in Limine Regarding Expert Testimony on Damages, Docket No. 185.
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full price and has retained all profits from those sales.”15 Warren acknowledges that these
holdings are not required in order for the court to deny the instant motion, but Warren
contends that “guidance on th[e]se issues will substantially assist the parties with the
valuation of this claim.”16
Warren’s request violates Rule 7(b)(1) which provides that “[a] request for a court
order must be made by motion.” It is for this reason courts have found that “a request for
affirmative relief is not proper when raised for the first time in an opposition.” Duong v.
Groundhog Enterprises, Inc., Case No. 2:19-cv-01333-DMG-MAA, 2020 WL 2041939,
at *12 (C.D. Cal. Feb. 28, 2020). Warren’s request is denied. At trial, the court will, of
course, instruct the jury as to how plaintiff’s damages should be calculated if the engine
block heaters supplied by Warren were defective.
Conclusion
Plaintiff’s motion in limine17 is denied.
DATED at Anchorage, Alaska, this 17th day of June, 2021.
/s/ H. Russel Holland
United States District Judge
15Opposition to Kendall’s Motion in Limine Regarding Expert Testimony on
Damages at 17, Docket No. 185.
16Id.
17Docket No. 171.
ORDER – Plaintiff’s Motion in Limine - 8 -
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