Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. La.: Expert’s opinions deemed reliable, relevant in WOW Café suit, (Apr 18, 2016)

By Greg Hammond, J.D.

In an action alleging that a restaurant franchisor breached an area development agreement, a developer’s expert could offer opinions criticizing another expert’s conclusions, the federal district court in New Orleans has ruled. In denying the franchisor’s motion to exclude, the district court found that the developer’s expert was qualified to testify as an expert in the field of business valuation, his testimony was support by sufficient facts or data and was relevant, and his report sufficiently set out the opinions he will express and the bases for those opinions (Spencer Franchise Services of Georgia, Inc. v. WOW Café and Wingery Franchising Account, LLC, April 15, 2016, Barbier, C.).

Spencer Franchise Services of Georgia, Inc. entered into an Area Development Agreement with Café and Wingery Franchising Account, LLC—an American grill-style restaurant franchisor—to develop restaurant franchises in the State of Georgia. After the parties’ relationship soured, Spencer filed claims that WOW breached the agreement and committed fraud, misrepresentation, and violation of the Louisiana Unfair Trade Practices and Consumer Protection Act.

The case was before the district court on Spencer’s motion to exclude a report offered by WOW’s expert witness, Ralph A. Litolff, Jr. Spencer argued that Litolff’s expert testimony should be excluded because: (1) he was not qualified to testify about the franchising business in general or about the report of Spencer’s franchising expert in general; (2) his testimony would be unreliable and irrelevant; and (3) his report failed to contain a complete statement of all opinions to be expressed and the basis and reasons for those opinions.

Qualifications. According to WOW, Litolff has 20 years of experience in business valuations, economic damage analysis, financial analysis, forecast and projections, forensic accounting, litigation support services, and strategic planning. He also is a certified public accountant and has received accreditations or certifications in business valuation, financial forensics, and valuation analysis, WOW claims. Finding that Litolff’s qualifications spoke for themselves, the court concluded that Litolff was qualified to testify as an expert witness in the field of business valuation.

Reliability. The court next found that Litolff’s testimony was supported by sufficient facts or data, which were taken from the underlying contracts, Spencer’s expert’s report, documents pertaining to WOW’s historical operations, WOW’s website, and data relating to casual dining brands in the U.S. market. Litolff’s report also was based on reliable principles and methods because the report followed accepted business valuation methodology. In particular, the court found that Litolff’s report can be said to use the same market-based approach methodology as Spencer’s expert.

Relevance. Spencer next argued that Litolff’s opinion was irrelevant because he merely questioned Spencer’s expert’s opinion without offering an opinion of his own and that cross-examination will be sufficient for the jury to decide whether to accept Spencer’s expert’s testimony. The court rejected this argument, finding that business valuation was not a common-sense subject that a jury member could evaluate based on his own common experience and knowledge and that Litolff’s testimony will help the trier of fact determine whether to accept Spencer’s expert’s opinion on damage calculations.

Sufficiency. Lastly, the court concluded that Litolff’s report sufficiently sets out the opinions he will express and the bases for those opinions. Litolff’s opinions generally criticized the conclusions of Spencer’s expert with regard to the number of franchises the Georgia and South Carolina markets should support, the court noted. Although Litolff did not offer his own opinions with regard to the number of franchises the markets should support, this fact did not render his statement of opinions incomplete, the court stated.

The case is No. 13-4688.

Attorneys: Peter J. Butler, Jr. (Breazeale, Sachse & Wilson, LLP) and Beau T. Shrable (Shrable, PC) for Spencer Franchise Services of Georgia, Inc. Christopher Michael Hatcher (Blue Williams, LLP) for WOW Café and Wingery Franchising Account, LLC.

Companies: Spencer Franchise Services of Georgia, Inc.; WOW Café and Wingery Franchising Account, LLC

Cases: FranchisingDistribution LouisianaNews