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Huntingford v. Pharmacy Corporation of America

United States District Court, D. New Mexico

March 1, 2019




         In this contractual dispute, $1, 250, 000 hangs in the balance. Plaintiff Ross Huntingford believes he is entitled to a deferred payment in that amount after selling his pharmacy business to Defendant Pharmacy Corporation of America d/b/a PharMerica (PharMerica). PharMerica argues that business profits in the second year following the sale fell far short of the threshold required for Mr. Huntingford to earn that deferred payment, or even a reduced deferred payment contemplated by the contract. It has produced spreadsheets stating the same. Mr. Huntingford counters that the spreadsheets are peppered with mathematical errors. He believes that PharMerica intentionally mismanaged the business to deny him the chance of ever obtaining the $1, 250, 000 deferred payment.

         After partially granting PharMerica's Motion for Summary Judgment on Mr. Huntingford's claims of quantum meruit and unjust enrichment (see Doc. 87), the Court must now determine if there are genuine disputes of fact that are material to resolving Mr. Huntingford's remaining claims of breach of contract and breach of the implied duty of good faith and fair dealing. Because the existence of genuine disputes of material fact on these issues depends on the admissibility and sufficiency of various evidence offered by both parties, the Court will take up the parties' evidentiary motions before turning to the motion for summary judgment.

         Having considered the submissions of counsel and relevant law, the Court will: (1) grant PharMerica's motion to exclude George Sandoval's expert testimony (Doc. 63); (2) deny in part PharMerica's motion in limine to exclude the testimony of Maureen Gant and Lori Carabajal but exclude certain statements from their affidavits (Doc. 62); (3) deny Mr. Huntingford's motion to strike the Earn-Out Reconciliations (Doc. 92); and (4) deny PharMerica's motion for summary judgment on all remaining counts (Doc. 39).

         I. Background[1]

         On September 30, 2013, Plaintiff Ross Huntingford and Defendant PharMerica entered into an Asset Purchase Agreement (APA) for Mr. Huntingford's pharmacy business. (Doc. 39-1 at 3.) The business provides pharmaceutical products, supplies, and consultation services to long-term care facilities in New Mexico. (Id.) The APA includes a deferred payment clause, which provides that if the Actual Gross Profit of the business meets a certain target amount at the two-year anniversary of the closing date, then PharMerica must make an additional payment to Mr. Huntingford. (Id. at 5.) The APA defines Actual Gross Profit as the gross profit earned between the one-year and two-year anniversaries of the closing date “from each of the Qualified Customer Accounts that Buyer actively services as of the Two Year Anniversary.” (Id. at 6.) The Actual Gross Profit calculation does not include any customer accounts terminated before the two-year anniversary by either PharMerica or the customer. (Id.)

         The deferred payment is to be calculated as follows: if, at the two-year anniversary, the Actual Gross Profit is greater than or equal to $2, 200, 000, PharMerica must pay Mr. Huntingford $1, 250, 000. (Id. at 5.) If the Actual Gross Profit is less than $1, 870, 000 (the “Target Gross Threshold”), Mr. Huntingford will receive no deferred payment. (Id.) If the Actual Gross Profit at the two-year anniversary falls between $2, 200, 000 and $1, 870, 000, Mr. Huntingford will receive a lesser deferred payment calculated using a reduction multiplier. (Id. at 5-6.) If PharMerica terminated an account prior to the two-year anniversary for any reason (besides being required to do so by law or because the customer account was not complying with the terms of its contract), then the Target Gross Threshold is reduced by the gross profit earned on that account prior to its termination. (Id. at 7.)

         At the two-year anniversary of the closing date, PharMerica must “calculate the Actual Gross Profit and deliver to [Mr. Huntingford] a statement (the “Deferred Payment Statement”) setting forth such calculation with reasonable supporting documentation.” (Id. at 6.) On January 6, 2016, PharMerica emailed Mr. Huntingford its Deferred Payment Statement, which included an “Earn-Out Summary” spreadsheet listing the gross profits from the purchased accounts and stating that the accounts fell short of the Target Gross Threshold. (Doc. 39-1 at 14, 19.) This initial Earn-Out Summary did not include accounting data for various consulting and pharmaceutical services that were part of the business and included accounting data for rebates, which the APA expressly excluded from the calculation of the Actual Gross Profit. (Id. at 14.) PharMerica subsequently revised the data and provided Mr. Huntingford with an updated copy of the spreadsheet, the “Earn-Out Reconciliation.”[2] (Doc. 39-1 at 14-15, 37-40.) According to the calculations in the Earn-Out Reconciliation and an affidavit by PharMerica's Senior Vice President of Corporate Development Christopher Schaefer, “Mr. Huntingford fell $648, 701.00 below the Target Gross Threshold and, as such, did not qualify for the Deferred Payment.” (Id. at 16.)

         Mr. Huntingford did not trust PharMerica's data calculations, and on November 7, 2017, filed suit in the Second Judicial District Court of New Mexico for the County of Bernalillo, which PharMerica removed to this Court. (Doc. 1 at 1.) The Complaint alleges that the original Earn-Out Summary omitted many accounts without explanation, and that “[i]f the threshold would have been reduced by the amount of profits from the omitted accounts, or if those profits would have been included in Defendant's calculations, Mr. Huntingford would have been entitled to a deferred payment.” (Doc. 1-1 at 5.) The Complaint includes four counts: (1) Breach of Contract; (2) Specific Enforcement of Contract; (3) Breach of the Duty of Good Faith and Fair Dealing; and (4) Quantum Meruit and Unjust Enrichment. (Id. at 6-8.)

         On May 7, 2018, nearly three months before the August 3, 2018 termination date for discovery, PharMerica filed its Motion for Summary Judgment on all four counts of Mr. Huntingford's Complaint. (See Docs. 39; 20 at 2.) PharMerica argues that there is no genuine dispute regarding the fact that the profits of the relevant customer accounts fell below the Target Gross Threshold. (Doc. 39 at 7.) Thus, it did not breach the APA by not paying Mr. Huntingford a deferred payment and Mr. Huntingford's claim for specific enforcement of the deferred payment provision must similarly fail (Id. at 8-9.) PharMerica urges the Court to rule in its favor on the good faith and fair dealing claim because Mr. Huntingford's argument that “PharMerica allegedly sabotaged the relevant customer accounts, causing customers to terminate their contracts before the two year anniversary . . .” makes no economic sense and was untimely asserted for the first time during an April 25, 2018 telephonic status conference. (Id. at 10; Doc. 95 at 2.)

         In an earlier ruling, the Court granted partial summary judgment in PharMerica's favor on the claims of quantum meruit and unjust enrichment because such claims are not permitted where the parties have an express and valid contract. (See Doc. 87 at 8-9.) In that ruling, the Court also allowed Mr. Huntingford additional time to clarify his position as to summary judgment on the remaining claims since discovery had been completed. (Id. at 13.) The supplemental briefing is now complete, and the Court must determine whether there are genuine disputes of fact that are material to Mr. Huntingford's remaining claims of (1) Breach of Contract, and (2) Breach of the Duty of Good Faith and Fair Dealing, [3] or if PharMerica is entitled to judgment as a matter of law.

         There are two main issues at the core of the parties' dispute in this case: First, whether the profits actually fell short of the Target Gross Threshold required to trigger a deferred payment; and second, whether PharMerica violated an implied duty of good faith and fair dealing by managing the accounts it purchased from Mr. Huntingford so poorly that clients terminated their accounts and reduced his chances of earning the deferred payment. PharMerica argues broadly that Mr. Huntingford has not presented any facts supported by admissible evidence that create a genuine dispute over either the accuracy of the Earn-Out Reconciliation spreadsheets or whether PharMerica managed the accounts in good faith, and thus his claims must fail. (Doc. 95 at 11-14.) Mr. Huntingford counters that his proffered expert witness, George Sandoval, has identified errors and discrepancies casting doubt on the accuracy of the spreadsheets (see Doc. 91 at 14), and that affidavits from two witnesses, Maureen Gant and Lori Carabajal, show that PharMerica employed poor management practices and refused to service accounts (see Id. at 10-14). Finally, Mr. Huntingford argues that the Court should strike the Earn-Out Reconciliation spreadsheets from the record because they are summaries prepared for litigation and thus only admissible under Federal Rule of Evidence 1006 if the underlying data is made available for review. (Doc. 92 at 3.)

         Each of these pieces of proffered evidence-Mr. Sandoval's expert report, Ms. Gant's and Ms. Carabajal's affidavits, and the spreadsheets themselves-are crucial to the determination of whether there is a genuine dispute of material fact regarding Mr. Huntingford's remaining claims. Thus, the Court will first address the admissibility of each piece of evidence described above, then turn to the question of whether summary judgment is proper here.

         II. The Court will exclude the testimony of George Sandoval and his expert report.

         As part of its evidentiary gatekeeping function under Federal Rule of Evidence 702, the Court must “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). See also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141-42 (1999) (extending the Daubert standard for evaluating scientific expert testimony to “technical” and “other specialized” knowledge). This requires a two-step inquiry, first determining whether the proffered expert is “qualified by ‘knowledge, skill, experience, training, or education' to render an opinion.” 103 Inv'rs I, L.P. v. Square D Co., 470 F.3d 985, 990 (10th Cir. 2006) (quoting Fed.R.Evid. 702). Second, the Court must determine whether the proposed testimony “is sufficiently ‘relevant to the task at hand[, ]'” Bitler v. A.O. Smith Corp., 400 F.3d 1227, 1234 (10th Cir. 2005) (quoting Daubert, 509 U.S. at 597), and has “a reliable basis in the knowledge and experience of [the expert's] discipline[, ]” Daubert, 509 U.S. at 592.

         Federal Rule of Evidence 702 codifies the elements laid out in Daubert and Kumho Tire Co. that are required to meet the second prong of the Court's gatekeeping inquiry-relevance and reliability. Rule 702 provides that a qualified expert witness may testify 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, 509 U.S. at 592-97; Kumho Tire Co., 526 U.S. at 141-42.

         Evidence is relevant if it “has any tendency” to make a fact of consequence “more or less probable than it would be without the evidence.” Fed.R.Evid. 401. “Under Rule 702, reports from experts . . . are admissible only if necessary to aid in the interpretation of scientific, technical, or other specialized facts” and may be excluded if they waste time or simply point out the obvious when “the jury [is] fully capable of assessing the facts.” See Sims v. Great Am. Life Ins. Co., 469 F.3d 870, 889 (10th Cir. 2006). The Court has “wide latitude . . . in exercising its discretion to admit or exclude expert testimony.” Bitler, 400 F.3d at 1232.

         To assist the Court in determining whether proposed testimony is reliable, Daubert sets out a non-exhaustive, “flexible” set of factors that trial courts may consider:

(1) whether the particular theory can be and has been tested; (2) whether the theory has been subjected to peer review and publication; (3) the known or potential rate of error; (4) the existence and maintenance of standards controlling the technique's operation; and (5) whether the technique has achieved general acceptance in the relevant scientific or expert community.

United States v. Taylor, 663 F.Supp.2d 1170, 1173 (D.N.M. 2009) (citing Daubert, 509 U.S. at 593-94). However, “whether Daubert's specific factors are, or are not, reasonable measures of reliability in a particular case is a matter that the law grants the trial judge broad latitude to determine.” Kumho Tire Co., 526 U.S. at 139.

         PharMerica argues that Mr. Sandoval's testimony and expert report should be excluded under both prongs of the Court's gatekeeping function. (Doc. 63 at 2-6.) First, PharMerica asserts that Mr. Sandoval is not qualified to offer an opinion on mathematics or accounting. (Id. at 3.) Second, PharMerica argues that his opinions are not relevant or reliable because the report only offers an opinion regarding mathematical calculations that the jury could complete without the help of an expert, and Mr. Sandoval has not explained what methodologies he used to generate his opinion. (Id. at 3-6.) Mr. Huntingford counters that Mr. Sandoval's expert report is offered specifically to shed light on the accuracy of the spreadsheets, as “Mr. Sandoval's expert report states that PharMerica's Earn-Out Reconciliation documents provided to Mr. Huntingford contain 30 discrepancies.” (Doc. 66 at 3.) He further asserts that the testimony “will help the trier of fact ...

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