RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 JGR, Inc. v. Thomasville Nos. 02-3640/3731
ELECTRONIC CITATION: 2004 FED App. 0163P (6th Cir.) Furniture Industries, Inc.
File Name: 04a0163p.06
_________________
UNITED STATES COURT OF APPEALS COUNSEL
FOR THE SIXTH CIRCUIT ARGUED: Michelle J. Sheehan, REMINGER &
_________________ REMINGER, Cleveland, Ohio, for Appellant. Marvin L.
Karp, ULMER & BERNE, Cleveland, Ohio, for Appellee.
JGR, INC., X ON BRIEF: Michelle J. Sheehan, Roy A. Hulme,
Plaintiff-Appellee/ - REMINGER & REMINGER, Cleveland, Ohio, for Appellant.
Cross-Appellant, - Marvin L. Karp, ULMER & BERNE, Cleveland, Ohio, for
- Nos. 02-3640/3731 Appellee.
-
v. > _________________
,
- OPINION
THOMASVILLE FURNITURE - _________________
INDUSTRIES, INC., -
Defendant-Appellant/ - BOYCE F. MARTIN, JR., Circuit Judge. In this diversity
Cross-Appellee. - breach of contract action, Thomasville Furniture Industries,
- Inc. appeals a $1,500,000 judgment in favor of JGR, Inc., and
N JGR cross-appeals the denial of pre-judgment interest. We
Appeal from the United States District Court note at the outset that although it is unclear whether “JGR,
for the Northern District of Ohio at Cleveland. Inc.” is the actual, formal name of the plaintiff company – as
No. 96-01780—Ann Aldrich, District Judge. opposed to an abbreviation – we refer to it as such because
the parties have done so. For the reasons discussed below, we
Argued: January 29, 2004 hold that the district court abused its discretion in permitting
a JGR witness to give lay opinion testimony about JGR’s lost
Decided and Filed: June 3, 2004 profits and loss of business value, and that the improper
admission of this testimony requires vacature of the damages
Before: MARTIN and MOORE, Circuit Judges; WEBER, award and remand for a new trial solely on the issue of
Senior District Judge.* damages.
I. FACTUAL AND PROCEDURAL BACKGROUND
The contract at issue in this case is a written agreement
called the “Thomasville Furniture Industries, Inc.
*
‘Thomasville Gallery’ Program” – which we will refer to as
The Hon orable H erman J. W eber, Senior United States District the “Gallery Agreement” – that governs the relationship
Judge for the Southern District of Ohio, sitting by designation.
1
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Furniture Industries, Inc. Furniture Industries, Inc.
between Thomasville, a furniture manufacturer, and furniture display area devoted solely to Thomasville products, as
retail establishments that Thomasville approves as specified in the 1990 Gallery Agreement. Gerald’s was
“Thomasville Galleries.” Pursuant to the Gallery Agreement, located across the street from another furniture store, called
Thomasville Galleries were “expected to” abide by certain “Furniture Land,” which was owned and operated by an
rules and requirements, such as maintaining a high quality individual named Mike Baker.1 Despite a promising
store, allowing Thomasville to exercise control over beginning, Gerald’s eventually began to lose money and JGR
personnel training, signage and other aspects of the business, became unable to pay Thomasville for the products that it
and – most importantly for purposes of this appeal – purchased for its Gerald’s store. Thomasville provided credit
displaying Thomasville products in an area that conformed to counseling services to JGR, but was forced to begin holding
detailed specifications. In exchange, Thomasville offered its orders until JGR could pay for them.
Thomasville Galleries assistance with interior design,
advertising and research, as well as a non-exclusive license to In March 1992, Thomasville revised its Gallery Agreement.
use Thomasville trademarks in connection with product The most significant change, for purposes of this case, was
promotions. the addition of an “expectation” that Thomasville Galleries
would “[d]isplay Thomasville product covering at least 7,500
If a retailer wished to be designated a Thomasville Gallery sq. ft. of selling floor space of which a physically separate and
and agreed to the terms set forth in the Gallery Agreement, its distinct area of no less than 5,000 sq. ft. (the “Gallery”) is set
representative would sign the last page of the program aside for the sole and exclusive purpose and function of
description and submit it to Thomasville for approval. This arranging, selling, and displaying Thomasville wood,
is what Gerald Yosowitz, JGR’s main principal, did on behalf upholstery, and other Thomasville home furnishings
of JGR in April 1990, and Thomasville approved JGR as a products.” (Emphasis added.) A March 10, 1992, letter
Thomasville Gallery the following month. The version of the written by Thomasville Vice President Daniel Grow
Gallery Agreement that was in effect at that time provided, highlights this change and states that Thomasville Galleries
among other things, as follows: “should establish a plan to be at this new minimum square
footage level of 7,500 sq. ft. by January 1, 1993. Any new
2. Expectations of Retailers. Retailers designated as Galleries will be at the 7,500 sq. ft. level when they open.”
Thomasville Galleries will be expected to:
Yosowitz, on behalf of JGR, signed and returned the
(a) Set aside a physically separate and distinct area of revised Gallery Agreement to Thomasville with handwritten
its selling floor space with a minimum of 5,000 notes on the back. These notes state, in relevant part:
square feet for the sole and exclusive purpose and
function of arranging, selling, and displaying . . . I sign this agreement under the condition that all
Thomasville furniture products, including both other Thomasville dealers in my marketing area are held
Thomasville wood furniture and Thomasville
upholstery.
1
On September 15, 1990, JGR opened a furniture store in Prior to forming the JGR business, Yosowitz worked with Baker at
Mentor, Ohio, called “Gerald’s,” with a 5,000-square foot Furniture Land. According to Yo sowitz, his relationship with Baker
deteriorated following his departure from Furniture Land.
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Furniture Industries, Inc. Furniture Industries, Inc.
to the same conditions . . . . If I correctly understand the Ultimately, no longer able to continue doing business,
letter from Dan Grow (dated 3/10/92) which spells out Gerald’s closed its doors on October 2, 1993.
Thomasville’s new guidelines (including square footage
requirements) all Thomasville dealers existing or new Although each party in this case has asserted various claims
will be held to the same requirements. If this is in fact against the other,2 the sole claim with which we are
the case my concearns [sic] have been addressed . . . . concerned in this appeal is JGR’s claim that Thomasville
breached the 1992 Gallery Agreement. The essence of that
In a letter dated August 4, William Carrico, also a claim is that Thomasville breached the Agreement by
Thomasville Vice President, acknowledged Yosowitz’s notes permitting Baker’s to sell Thomasville furniture without
and stated that Thomasville would “review the matter by requiring Baker’s to “[d]isplay Thomasville product covering
July 1, 1993,” after letting “matters settle out.” at least 7,500 sq. ft. of selling floor space of which a
physically separate and distinct area of no less than 5,000 sq.
In the meantime, in the fall of 1992 Thomasville negotiated ft. (the “Gallery”) is set aside for the sole and exclusive
with Furniture Land, JGR’s competitor, a different marketing purpose and function of arranging, selling, and displaying
agreement, called the “Thomasville Home Furnishings Store Thomasville wood, upholstery, and other Thomasville home
Agreement.” Pursuant to this agreement, the name of the furnishings products.” This claim was the subject of a jury
Furniture Land chain would be changed to “Baker’s” and the trial featuring the testimony of several witnesses. JGR
chain would carry the Thomasville line in seven stores, presented the only damages witness, a certified public
including the one across the street from Gerald’s, as well as accountant and lawyer named James Gornik. Gornik testified
in a brand new 10,000 square foot store devoted solely to as to the amount of lost profits and loss of business value that
Thomasville products. In November 1992, pursuant to the JGR suffered as a result of Thomasville’s alleged breach of
Home Furnishings Agreement, Furniture Land changed the the 1992 Gallery Agreement. Thomasville filed a motion in
name of all its stores in the Cleveland area to “Baker’s” and limine to exclude Gornik’s testimony on the ground that it
kicked off a “grand re-opening” of the store across the street
from Gerald’s. Baker’s advertised this grand opening with a
circular featuring its new “Thomasville Gallery” line of 2
On July 1, 1996, Thoma sville filed suit in the district court against
furniture. JGR alleges that Baker’s displayed only a few JGR to collect approximately $665,000 for furniture and service charges
isolated pieces of Thomasville furniture at its grand opening. that JGR owed to Tho masville. JGR subsequently filed suit against
According to JGR, Baker’s employees urged its customers to Thoma sville in Ohio state court, alleging that Thomasville’s breach of the
view the entire line of Thomasville furniture at Gerald’s, but 1992 Gallery Agreement and fraudulent misrepresentation caused JGR to
to purchase the items at Baker’s. Baker’s customers allegedly go out of b usiness. T homasville removed that suit to federal court and
filed a motion for summary judgment on all of JGR’s claims. On
were handed cards that stated: “Go to Gerald’s. Bring back September 7, 1999, the district court granted Thomasville’s motion for
a price and we’ll beat it by five percent.” summary judgment in its entirety. JG R then filed a motion for
reconsideration, arguing that the district court had misinterpreted the
The day after the Baker’s grand opening, in light of JGR’s nature of its claim for breach of the 1992 Gallery Agreement. The district
mounting financial problems and debts, Thomasville placed court denied the motion and JGR appealed. On appeal, this Court
JGR’s credit on hold and refused to process or ship any orders reversed and remanded the case for further pro ceed ings with respect to
that claim. This appeal relates solely to the proceedings on remand
from Gerald’s until JGR sent full payment for those orders. concerning that breach of contract claim.
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Furniture Industries, Inc. Furniture Industries, Inc.
was properly the subject of expert testimony, not lay opinion Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999); Barnes
testimony, but that he was not qualified to give expert v. Owens-Corning Fiberglass Corp., 201 F.3d 815, 822 (6th
testimony. The district court denied Thomasville’s motion, Cir. 2000). Thomasville argues that the district court abused
and Gornik proceeded to testify about projections that he had its discretion in permitting Gornik to testify as a lay witness.
prepared showing what JGR’s net income would have been in JGR, on the other hand, argues that the district court in fact
each year from 1991 through 2005 and what the net worth and permitted Gornik to testify as an expert witness, not a lay
value of the business would have been at the end of each of witness, and that although no formal hearing was conducted
those years. pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 (1993), the district court nevertheless properly
The jury determined that Thomasville had, in fact, breached determined that he was qualified to give expert testimony.
the 1992 Gallery Agreement and that JGR was entitled to a
damages award of $0 for lost profits and $1,500,000 for loss The first issue that we must resolve is whether the district
of business value. Thomasville subsequently filed a Rule 50 court permitted Gornik to testify as a lay witness or as an
motion for judgment as a matter of law, arguing that the jury expert witness. Fortunately, the record is replete with explicit
verdict had no basis for an award of loss of business value. statements by the district court indicating that Gornik was a
The district court denied the motion. JGR filed a motion for lay witness and was permitted to testify as such. For
pre-judgment interest pursuant to Ohio Revised Code section example, in a colloquy with counsel regarding Thomasville’s
1343.03(A). While the district court initially granted the motion to exclude Gornik’s testimony, the court reasoned:
motion and awarded pre-judgment interest at the rate of “But I don’t remember having Daubert extended to a CPA
3.73%, Thomasville filed a motion for reconsideration of that who basically is, in this case, a factual witness. He does their
award, which the district court granted. On reconsideration, books.”3 The following morning, after conducting additional
the district court changed its original ruling and declined to research, the district court confirmed that Gornik would not
award any pre-judgment interest. Judgment was entered for be characterized as an expert witness and, therefore, “there is
JGR in the amount of $1,500,000. Thomasville appealed the no Daubert analysis to be done.” Moreover, the district court
district court’s $1,500,000 judgment in favor of JGR, and explicitly stated: “I’m glad nobody is asking me to call this
JGR cross-appealed the denial of its motion for pre-judgment man an expert . . . I wouldn’t want to have a Daubert hearing
interest. on his methodologies.”
II. ANALYSIS
A. Testimony of James Gornik
3
The district court’s apparent assumption that Gornik was a “factual
The primary issue in this case concerns the admissibility of witness” who “does [JGR ’s] books” is false. In fact, Gornik was never an
testimony by JGR witness James Gornik, a certified public accountant for JGR and never did its books. His first experience with
accountant and lawyer who testified about the amount of lost JGR was in March 1999, when he was contacted by JGR’s trial counsel
profits and loss of business value that JGR allegedly suffered for the purpose of “putting down on paper what the financial statements
as a result of Thomasville’s breach of contract. We review a of Gerald’s Furniture would have looked like had the Thomasville support
district court’s evidentiary rulings for abuse of discretion. to the business continued and had the owners been able to carry through
on how they planned to operate the business.”
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Thus, the record unequivocally indicates that the district The Advisory Committee Notes for the 2000 Amendments
court permitted Gornik to testify as a lay witness, not an further explain that:
expert witness, and that no inquiry was made as to Gornik’s
qualifications to testify as an expert witness. Therefore, the [M]ost courts have permitted the owner or officer of a
question to which we now turn is whether the district court business to testify to the value or projected profits of the
abused its discretion in permitting Gornik to testify as a lay business, without the necessity of qualifying the witness
witness. See United States v. Anderskow, 88 F.3d 245, 249 as an accountant, appraiser, or similar expert. Such
(3d Cir. 1996) (“we review the admission of . . . opinion opinion testimony is admitted not because of experience,
testimony under Rule 701 for abuse of discretion”); Doddy v. training or specialized knowledge within the realm of an
Oxy USA, Inc., 101 F.3d 448, 459 (5th Cir. 1996) (admission expert, but because of the particularized knowledge that
of lay testimony under Rule 701 is reviewed for abuse of the witness has by virtue of his or her position in the
discretion). business. The amendment does not purport to change
this analysis.
A lay witness – i.e., one who “is not testifying as an expert”
– may only testify as to: Id. (emphasis added) (citation omitted).
opinions or inferences which are (a) rationally based on The explanation set forth in the Advisory Committee Notes
the perception of the witness, (b) helpful to a clear is reflected in the recent Fifth Circuit case of Dijo, Inc. v.
understanding of the witness’ testimony or the Hilton Hotels Corp., which is strikingly similar to the case
determination of a fact in issue, and (c) not based on sub judice. In Dijo, the Fifth Circuit held that the district
scientific, technical, or other specialized knowledge court abused its discretion in permitting a “a financial
within the scope of Rule 702. consultant” to testify as a lay witness regarding the plaintiff
company’s lost profits. 351 F.3d 679, 685-87 (5th Cir. 2003).
FED . R. EVID . 701. Subsection (c) was added to this rule in Although the witness was the plaintiff’s “primary contact” at
2000 in order to “eliminate the risk that the reliability a commercial lending facility with which the plaintiff had a
requirements set forth in Rule 702 will be evaded through the business relationship, he had not served as an owner or officer
simple expedient of proffering an expert in lay witness of the plaintiff company. Id. at 685. Additionally, the
clothing.” FED . R. EVID . 701, Advisory Committee Notes for witness’s “opinion . . . was based on preliminary income
the 2000 Amendments.4 figures and other information that he had received from [the
plaintiff’s founder],” and his “appraisal was not based upon
his own independent knowledge or observations.” Id. at 686.
4
Rule 70 2 provides:
If scientific, technical, or other specialized kno wledge will assist
the trier of fact to understand the evidence or to determine a fact
in issue, a witness q ualified as an expert b y know ledge , skill, reliable principles and methods, and (3) the witness has applied
experience, training, or education, may testify thereto in the the principles and method s reliably to the facts of the ca se.
form of an opinion or otherwise, if (1) the testimony is based
upon sufficient facts or data, (2) the testimo ny is the product of F ED . R. E VID . 702 .
Nos. 02-3640/3731 JGR, Inc. v. Thomasville 11 12 JGR, Inc. v. Thomasville Nos. 02-3640/3731
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In considering whether the witness was properly permitted Moreover, the improper admission of Gornik’s testimony
to give lay opinion testimony concerning lost profits, the Fifth affected Thomasville’s substantial rights. See id. at 687. For
Circuit reasoned: whatever reason, Gornik was the only witness called by either
party to testify as to the issue of damages, and – although he
It is telling that DIJO responds . . . not with evidence of was subject to cross-examination – Gornik’s testimony about
[the witness]’s involvement with [the plaintiff] or the the amount of JGR’s damages was unchallenged by any other
Project, but only emphasizing [his] substantial business witness.
experience. . . Such generic industry experience does not
pass Rule 701 scrutiny. [The plaintiff] never attempted For these reasons, we hold that the improper admission of
to qualify [the witness] as an expert; and a lay witness Gornik’s lay opinion testimony requires vacature of the jury’s
who was never employed by or directly involved in a damage award and remand for a new trial solely on the issue
business is unlikely to have the type of first-hand of damages. See id. at 687. In light of this holding, we need
knowledge necessary to provide reliable forecasts of not consider Thomasville’s other arguments concerning the
future lost profits. The further removed a layman is from damages award or JGR’s cross-appeal regarding the denial of
a company’s day-to-day operations, the less likely it is pre-judgment interest. We must, however, consider two
that his opinion testimony will be admissible under Rule additional arguments that Thomasville has raised.
701.
B. Evidence of Alleged Oral Contract
Id. Thus, in light of the witness’s lack of “the requisite first-
hand, personal knowledge” of the company about which he Thomasville’s remaining two arguments concern the
testified, the Fifth Circuit held that the district court abused its admission of evidence about an alleged oral contract between
discretion in permitting the witness to give lay opinion JGR and Thomasville. JGR had previously alleged that
testimony under Rule 701. Id. at 686-87. Thomasville orally promised JGR that it would not sell
Thomasville furniture to Baker’s. This alleged oral promise
The same is true in this case. Like the witness in Dijo, was the subject of a prior breach of contract claim that is not
Gornik has never been an owner, officer or director of JGR. at issue here. Nevertheless, the district court permitted
Additionally, the information upon which he relied in making Yosowitz to mention this alleged oral promise in his trial
his calculations of lost profits and loss of business value came testimony, over Thomasville’s objection. Thomasville later
primarily from Yosowitz, and Gornik admitted that he did not submitted proposed jury interrogatories that it claimed were
independently verify much of that information.5 Therefore, necessary to ensure that the jury did not focus upon the
Gornik had no basis upon which to offer lay opinion testimony concerning the alleged oral contract, but the district
testimony about JGR’s lost profits or loss of business value, court declined to submit the interrogatories to the jury.
and the district court abused its discretion in admitting that Thomasville argues that the admission of Yosowitz’s
testimony. testimony about the alleged oral contract was irrelevant under
Rule 401 and unfairly prejudicial under Rule 403, and that the
district court abused its discretion in refusing to submit
5 Thomasville’s proposed interrogatories to the jury.
Go rnik testified: “Our role was not to verify a whole lot of things
. . . I only verified them against my own e xperience.”
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The district court recognized that the oral promises at issue imposed on JGR.” This instruction – particularly in
were “not part of the [1992 Gallery Agreement],” but combination with the court’s other jury instructions – was
admitted some evidence of the alleged oral contract as proper and served the purposes that Thomasville’s proposed
“background testimony regarding the relationship between interrogatories were intended to serve.
JGR and Thomasville Furniture prior to the 1992 agreement.”
The district court cautioned JGR’s counsel not to “dwell” on III. CONCLUSION
the evidence and explicitly instructed the jury that:
For the foregoing reasons, we AFFIRM the district court’s
the sole issue in this case is whether Thomasville judgment insofar as it reflects the jury’s verdict as to liability,
breached the 1992 agreement. Should you consider but we VACATE the jury’s damages award and REMAND
evidence regarding written or oral statements or acts of for a new trial solely on the issue of damages.
JGR, Thomasville Furniture, or other parties prior to the
1992 agreement, consider it only to the extent that it
helps you understand the intentions of JGR and
Thomasville Furniture with regard to that 1992
agreement.
Based upon our thorough review of the record, we conclude
that the district court committed no abuse of discretion in
admitting some evidence relating to the alleged oral contract
for the limited purpose of background information,
particularly in light of its instruction to the jury, which we
must presume was followed.
We also conclude that the district court did not abuse its
discretion in declining to submit Thomasville’s proposed
interrogatories to the jury. Federal Rule of Civil Procedure
49(b) permits a trial court to submit interrogatories to a jury
on issues of fact that are necessary for a verdict, but the rule
does not require the court to do so. It is well established that
it “is in the [trial] court’s discretion whether to submit written
interrogatories in connection with a general verdict.” Portage
II v. Bryant Petroleum Corp., 899 F.2d 1514, 1520 (6th Cir.
1990). In this case, the district court instructed the jury to
determine whether “Thomasville Furniture breached their
1992 agreement by breaching a representation, or
understanding, that any new Thomasville dealer would be
held to the same square footage requirements that were being