United States District Court, D. South Dakota, Western Division
ORDER DENYING DEFENDANTS’ MOTION TO DISQUALIFY EXPERT WITNESS AND DENYING PLAINTIFF’S MOTION FOR ATTORNEYS’ FEES
KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE
Defendants, Shiba Investments, Inc., Karim Merali, and Zeljka Curtullo, move the court to disqualify Kevin Hanley as an expert witness for plaintiff, Atmosphere Hospitality Management, LLC. Docket 214. Atmosphere resists the motion. Additionally, Atmosphere moves the court for an award of attorneys’ fees. Docket 262. Defendants resist the motion. The court denies both motions.
Atmosphere brought this action against Shiba and Merali to resolve issues related to a licensing contract and management contract between the parties. The agreements enabled Shiba to operate a hotel in Rapid City, South Dakota, that it owns under Atmosphere’s brand name, “Adoba, ” and gave management of the hotel to Atmosphere. This litigation began in 2013 after defendants terminated both agreements.
I. Defendants’ Motion to Disqualify Kevin Hanley as an Expert
Defendants move to disqualify Kevin Hanley, Atmosphere’s expert witness. Hanley has worked in the hotel industry since 1979. During that time, he has served primarily in corporate governance and managerial positions for several hospitality companies. Much of Hanley’s recent work experience pertains to hotel financing, ownership, and real estate ventures. On October 17, 2014, after Hanley had been designated as Atmosphere’s expert witness, Hanley was deposed by defendants.
During Hanley’s deposition, he was asked about the scope of his employment with Atmosphere. He testified that the “general purpose” of his role as an expert was to analyze four documents: the proffered licensing agreement, the licensing agreement the parties ultimately signed, the proffered property management agreement, and the property management agreement the parties ultimately signed. Docket 216-1 at 4. More specifically, Hanley was hired to opine whether the terms and conditions used in those four documents were consistent with the terms and conditions that were typically used in similar contracts in the hotel industry. Id. Hanley’s report concluded that the terms and conditions of the two proffered agreements were generally consistent with the standards in the hotel industry while the terms and conditions of the two executed agreements were not. Docket 231-3 at 4.
Attached to Hanley’s report were copies of six hotel license agreements. Those agreements were created by Courtyard by Marriot, Wyndham Hotels, Comfort Inn, Doubletree by Hilton, Red Lion Hotels, and AmericInn Hotels. Hanley testified that those contracts were “included to reflect a sampling of what would be perceived as generally consistent with industry standards.” Docket 216-1 at 5. Also informing Hanley’s analysis was his “own experience over more than 30 years in reading franchise agreements and license agreements . . . including the many agreements that [he has] been a party to [him]self.” Id. at 7.
Hanley testified that he compared the proffered and executed versions of the parties’ contracts to the generally accepted standards in the hotel industry. Id. at 6. Hanley was then asked why his report did not explain where the parties’ contracts differed from the six sample contracts that were appended to his report. He explained that such a task “was not within the scope of [his] employment.” Id. at 7. But when asked whether he nonetheless compared the parties’ contracts to the industry standards, Hanley reaffirmed that “[he] did compare them.” Id.
Hanley was also asked a series of questions concerning the reasons why someone would want to enter into a franchise arrangement. For example, Hanley was asked whether “an attribute of a franchise [would] be a higher chance of success than a sole proprietor, ” whether “an attribute of a franchise [would] be selling power through name recognition of a known brand, ” and whether “an attribute of a franchise [would] be customer leads generated through a systematic website or call center, ” among other things. Id. at 8. To these questions, Hanley generally responded that “[i]t may be.” Id. Hanley explained that each could be a potential benefit of associating with a franchise but “whether it is or not [an actual benefit] would remain to be seen.” Id. at 6. When asked whether any of those potential benefits were also attributes of the Adoba franchise, Hanley responded that he was “not familiar enough with all facets of the Adoba franchise system to be able to attest to that.” Id. at 8. But Hanley explained that his understanding was that this was the first Adoba hotel in existence “[a]nd so many of the attributes that [defense counsel] described a moment ago I would not expect to be present in a franchise system that had [only] one or a few hotels.” Id. at 8-9.
Hanley was also asked if he understood that the Adoba hotel was not actually part of a “franchise” in the legal sense. Hanley replied that he was not an attorney and could not address such semantic differences or their legal significance. Id. at 9. But when asked why he compared the parties’ licensing agreement to a franchise agreement when the Adoba hotel is not part of a franchise, Hanley testified that “the word ‘franchise’ and ‘license agreement’ is often used interchangeably in the hotel sector, based on my experience.” Id. He explained that “[t]here may or may not be subtleties beneath that, but industry participants often use the terms interchangeably.” Id. at 5.
Defendants contend that state law governs the admission of expert opinion evidence in this case. Docket 215 at 5 (“The court’s discretion is [sic] in determining the admissibility of expert witnesses is governed by long-standing South Dakota law.”). It does not. Unrein v. Timesavers, Inc., 394 F.3d 1008, 1011 (8th Cir. 2005) (“Since the admissibility of expert testimony in diversity cases is governed by federal law, we must focus on whether the proposed testimony meets the federal standard of admissibility.”) (internal citation omitted). Rather, Federal Rule of Evidence 702 provides the governing standard. Id.
Under Rule 702, the trial court acts as a “gatekeeper” by screening a party’s proffered expert testimony for its reliability and relevance. Daubert v. Merrel Dow Pharms., Inc., 509 U.S. 579, 589 (1993); Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999) (“The objective of [the gatekeeping] requirement is to ensure the reliability and relevancy of expert testimony.”). Rule 702 provides:
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:
(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 ...