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Sid Leach (#019519) Andrew F. Halaby (#017251) Monica A. Limón-Wynn (#019174) SNELL & WILMER L.L.P. One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 Telephone: (602) 382-6372 Attorneys for Plaintiff Hypercom Corporation IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Hypercom Corporation, Plaintiff, vs. Omron Corporation, Defendant. Pursuant to Rules 403, 702, and 703 of the Federal Rules of Evidence and Rules 16 and 56 of the Federal Rules of Civil Procedure, Plaintiff Hypercom Corporation ("Hypercom") moves for an Order precluding Omron Corporation ("Omron") from using the testimony of James Dunlop, his "Patent Analysis Report," which report Omron submitted as Exhibit 9 to support its Second Motion for Summary Judgment (doc #137 and doc #138), or his "movie" because both constitute inadmissible evidence. In addition, Mr. Dunlop should be precluded from testifying under Rule 403, Fed.R.Evid., because any probative value is substantially outweighed by the danger of unfair prejudice and misleading the jury. No. CV 04-0400 PHX PGR HYPERCOM CORPORATION'S MOTION TO STRIKE INADMISSIBLE EVIDENCE AND TO PRECLUDE TESTIMONY OF JAMES DUNLOP
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MEMORANDUM OF POINTS AND AUTHORITIES I. ONLY ADMISSIBLE EVIDENCE MAY BE CONSIDERED IN RULING ON A MOTION FOR SUMMARY JUDGMENT In ruling on a summary judgment motion, a trial court may consider only admissible evidence. Fed.R.Civ.P. 56; Beyene v. Coleman Security Services, Inc., 854 F.2d 1179, 1182 (9th Cir. 2002). When inadmissible or deficient materials are submitted in support of motion for summary judgment, the deficiency is properly challenged through a motion to strike. Nissan Sentra, 201 Ariz. 117, 32 P.3d at 39; Johnson v. Svidergol, 157 Ariz. 333, 335, 757 P.2d 609, 611 (Ct. App. 1988) ("When insufficient supporting documents are submitted a motion to strike is appropriate."). Because Dunlop's written report is not admissible, Omron cannot rely on it to raise a genuine issue of fact to defeat summary judgment. Rotec Industries, Inc. v. Mitsubishi Corp., 36 F. Supp.2d 810, 816 (N.D. Ill. 1998) ("It is well settled that a party opposing a motion for summary judgment must rely on competent evidence of a type otherwise admissible at trial."), aff'd, 215 F.3d 1246, 1254 (Fed. Cir. 2000); Camporeale v. Airborne Freight Corp., 732 F. Supp. 358, 364 (E.D.N.Y.) (a court, in reviewing a motion for summary judgment, may consider only facts that would be admissible at trial), aff'd, 923 F.2d 842 (2d Cir. 1990); Piantadosi v. Loew's Inc., 137 F.2d 534, 536 (9th Cir. 1943) ("[M]ere denials, unaccompanied by any facts which would be admissible in evidence at a hearing, are not sufficient to raise a genuine issue of fact."). II. DUNLOP'S REPORT CONSTITUTES INADMISSIBLE EVIDENCE BECAUSE OMRON DID NOT TIMELY DISCLOSE HIM A. The Scheduling Order
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The Scheduling Order (doc. #76) in this case set a deadline for Omron to disclose the identity of all persons who may be used at trial to present evidence under Fed.R.Evid. 702, 703, 704, and 705, and their reports in compliance with, Fed.R.Civ.P. 26(a)(2)(B), no later than April 1, 2006. The report required under Rule 26(a)(2)(B),
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Fed.R.Civ.P., includes a complete statement of all opinions to be expressed by the witness and the basis and reasons therefore, the data and information considered in forming such opinions, the exhibits to be used in support of the opinions, the qualifications of the witness, etc. The Scheduling Order further provided that the parties were to depose all expert witnesses no later than May 8, 2006. The Court thereafter entered an Order (doc #121) granting the parties' request for leave to depose Omron's two other experts, Brad Gulko and Charles Berman, on June 20 and June 21, 2006, respectively. B. Dubbing James Dunlop as a Purported "Fact Witness" Is a Transparent Attempt to Circumvent The Court's Scheduling Order
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Discovery closed on June 15, 2006. On June 15, 2006 at 7:45 p.m., counsel for Omron sent via email a Supplemental Disclosure Statement in which Omron disclosed one witness: James Dunlop. (See Omron's Supplemental Disclosure Statement dated June 15, 2006 attached hereto as Exhibit A.) Although Omron referred to Mr. Dunlop as a "fact witness," Omron also submitted Mr. Dunlop's curriculum vitae along with a written report prepared by Mr. Dunlop (presumably for a fee) and entitled, "Patent Analysis Report." Thus, although Omron has dubbed Mr. Dunlop as a "fact witness," Omron clearly intends for Mr. Dunlop to serve as another expert witness in this case. Omron should have disclosed Mr. Dunlop and produced his report no later than April 1, 2006 pursuant to the deadline set forth in the Court's Scheduling Order. III. OMRON IS PRECLUDED FROM USING DUNLOP IN THIS CASE Under the provisions of Rule 16(f), Fed.R.Civ.P.: If a party or party's attorney fails to obey a scheduling or pretrial order, . . . the judge, upon motion or the judge's own initiative, may make such orders with regard thereto as are just, and among others any of the orders provided in Rule 37(b)(2)(B), (C), and (D). In lieu of or in addition to any other sanction, the judge shall require the party or the attorney representing the party or both to pay the reasonable
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expenses incurred because of any noncompliance with this rule, including attorney's fees, unless the judge finds that the noncompliance was substantially justified or that other circumstances make an award of expenses unjust. The Court may impose one or more available sanctions authorized under Rules 16 and 37(b)(2), Fed.R.Civ.P. For example, the Court may enter "[a]n order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence." Fed.R.Civ.P. 37(b)(2)(B). The Court may enter an order "striking out pleadings or parts thereof, . . . or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party." Fed.R.Civ.P. 37(b)(2)(C). The Court may also make, "[i]n lieu of any of the foregoing orders or in addition thereto, an order treating as a contempt of court the failure to obey any orders. . . ." Fed.R.Civ.P. 37(b)(2)(D). Notably, the Advisory Committee Notes for the 1983 amendment to Rule 16(f) cite with approval Admiral Theatre Corp. v. Douglas Theatre, 585 F.2d 877 (8th Cir. 1978) (district court has discretion to exclude exhibits or refuse to permit the testimony of a witness not listed prior to trial in contravention of their pretrial order). Cloaking Mr. Dunlop as an expert in this case is a transparent attempt to circumvent the deadlines in the scheduling order. This attempt blatantly disregard the express orders of this court and should not be permitted. Accordingly, Omron should be precluded from using Mr. Dunlop's testimony and the report containing his expert opinion in this action.
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IV.
DUNLOP'S TESTIMONY AND REPORT VIOLATE RULE 702 AND 703 OF THE FEDERAL RULES OF EVIDENCE Omron is attempting to use a "patent analysis report" prepared by a witness to
support a conclusion that Hypercom infringed upon U.S. Patent No. 5,012,077. Such report violates the requirements of Fed.R.Evid. 702 and 703. A. RULE 702
Under Rule 702 of the Federal Rules of Evidence, the role of the trial judge is to "ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Daubert I, 509 U.S. at 589. In making such a determination, the trial court engages in a two-part inquiry. First, the court must determine whether the expert's testimony reflects "scientific knowledge," that is, "whether their findings are `derived by scientific method,' and whether their work product amounts to `good science.'" Daubert II, 43 F.3d at 1315. Second, the court must determine whether the proffered expert testimony is relevant, "i.e., that it logically advances a material aspect of the proposing party's case." Id. Essentially, under Daubert, the trial court's task "is to analyze not what experts say, but what basis they have for saying it." Id. at 1316. The inquiry envisioned by Rule 702 is ... a flexible one. Its overarching subject is the scientific validity and thus the evidentiary relevance and reliability of the principles that underlie a proposed submission. The focus, of course, must be solely on principles and methodology, not on the conclusions that they generate. Daubert I, 509 U.S. at 594-95 (footnotes omitted). Nonetheless, "conclusions and methodology are not entirely distinct from one another." General Electric Co. v. Joiner, 522 U.S. 136, 146 (1997). The court "must examine the expert's conclusions in order to determine whether they could reliably flow from the facts known to the expert and the methodology used." Heller v. Shaw Industries, Inc., 167 F.3d 146, 153 (3d Cir. 1999). "A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered." General Electric Co. v. Joiner, 522 U.S. at 146. However, such an opinion will be excluded not
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because it is necessarily incorrect, but because it is not sufficiently reliable and therefore too likely to lead the factfinder to an erroneous conclusion. In re TMI Litigation, 193 F.3d 613, 666 (3rd Cir. 1999). Under Rule 702, "the party presenting the expert must show that the findings are based on sound science." Daubert II, 43 F.3d at 1316. B. RULE 703
Although the primary locus of a district court's gatekeeping role is Rule 702, a court "should also be mindful of other applicable rules," Daubert v. Merrill Dow Pharmaceuticals, 509 U.S. 579, 589 (1993) ("Daubert I"), when conducting a Daubert analysis, In re TMI Litigation, 193 F.3d 613, 697 (3rd Cir. 1999). Rule 703 provides: The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence. Fed.R.Evid. 703 (emphasis added). Accordingly, the proponent of expert testimony must make two showings under Rule 703. First, the party offering the expert testimony must show that the expert relied on facts or data of the type relied upon by experts in the field. Second, the party must show that this reliance was reasonable. In re TMI Litigation, 193 F.3d 613, 697 (3rd Cir. 1999). If the data underlying the expert's opinion is unreliable, or a reasonable expert in the field would not base an opinion on it, the opinion resting on that data must be excluded. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 595 (1993) ("Rule 703 provides that expert opinions based on otherwise inadmissible hearsay are to be admitted only if the facts or data are `of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject.'") (emphasis added); In re TMI Litigation, 193 F.3d 613, 697 (3rd Cir. 1999); In re Paoli Railroad Yard PCB Litigation, 35 F.3d 717, 748 (3d Cir. 1994), cert. denied, 513 U.S. 1190
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(1995). The key inquiry is reasonable reliance, and that inquiry dictates that the trial judge must conduct an independent evaluation into reasonableness. Rule 703's reliability standard is similar to Rule 702's reliability requirement, i.e., "there must be good grounds on which to find the data reliable." In re TMI Litigation, 193 F.3d 613, 697 (3rd Cir. 1999). Rule 703 thus focuses on the data underlying the expert's opinion. It permits experts to rely on hearsay only so long as that hearsay is of the kind normally employed by experts in the field. In re "Agent Orange" Product Liability Litigation, 611 F. Supp. 1223, 1245 (E.D. N.Y. 1985). Even if Omron had timely disclosed Dunlop as one of its expert witnesses, Omron would still bear the burden of showing that the data underlying Dunlop's "Patent Analysis Report" is the type of data reasonably relied upon by experts. In re Paoli Railroad Yard PCB Litigation, 35 F.3d 717, 748 (3d Cir. 1994) ("It is the judge who makes the determination of reasonable reliance, and ... for the judge to make the factual determination under Rule 104(a) that an expert is basing his or her opinion on a type of data reasonably relied upon by experts, the judge must conduct an independent evaluation into reasonableness."), cert. denied, 513 U.S. 1190 (1995); United States v. Locascio, 6 F.3d 924, 938 (2d Cir. 1993) ("We agree that a district court is not bound to accept expert testimony based on questionable data simply because other experts use such data in the field."), cert. denied, 511 U.S. 1070 (1994); University of Rhode Island v. A.W. Chesterton Co., 2 F.3d 1200, 1218 (1st Cir. 1993) ("Rules 703 and 705 do not afford automatic entitlements to proponents of expert testimony. Rule 703 requires the trial court to give `careful consideration' to any inadmissible facts upon which the expert will rely, in order to determine whether reliance is `reasonable.'"); Slaughter v. Southern Talc Co., 919 F.2d 304, 306-07 (5th Cir. 1990) ("Federal Rule of Evidence 703 requires courts to examine the reliability of an expert's sources to determine whether they satisfy the threshold established by the rule."); Head v. Lithonia Corp.,
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881 F.2d 941, 944 (10th Cir. 1989) ("Implicit in [Rule 703] is the court's [obligation] to make a preliminary determination pursuant to Rule 104(a) whether the particular underlying data is of a kind that is reasonably relied upon by experts in the particular field in reaching conclusions . . . Thus, the district court may not abdicate its independent responsibilities to decide if the bases meet minimum standards of reliability as a condition of admissibility."); Almonte v. National Union Fire Ins. Co., 787 F.2d 763, 770 (1st Cir. 1986) (trial court erred in failing to conduct more extensive investigation into whether police expert's reliance on facts or data was reasonable); Soden v. Freightliner Corp., 714 F.2d 498, 505 (5th Cir. 1983) ("Though courts have afforded experts a wide latitude in picking and choosing the sources on which to base opinions, Rule 703 nonetheless requires courts to examine the reliability of those sources."); Baumholser v. Amax Coal Co., 630 F.2d 550, 553 (7th Cir. 1980) ("It is for the trial court to determine, in the exercise of its discretion, whether the expert's sources of information are sufficiently reliable to warrant reception of the opinion."). V. OMRON'S EXPERT WILL MISLEAD THE JURY Dunlop's testimony and report should be excluded under Rule 403. Rule 403 grants to the district court the discretion to exclude relevant evidence "if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury." Given the realities of litigation, the opinion of a witness impressed by the court with the label of "expert" may carry a great deal of weight with a lay jury, particularly in [complex] matters . . . . Permitting such a witness to offer an opinion unsupported by a sufficient factual foundation would significantly increase the risk of misleading the jury and confusing the issues, the very dangers against which Rule 403 defends. Elcock v. Kmart Corporation, 233 F.3d 734, 756 (3rd Cir. 2000).
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It would be prejudicial and unfair to allow Dunlop to testify that Hypercom's 27 product infringed upon the `077 Patent merely because he claims to have "observed" 28
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the terminal "automatically discriminating" between one type of card and another, when such conclusion is not based on any analysis as to any programming that might have enabled the terminal to discriminate automatically. That is hardly the type of analysis "reasonably relied" upon. Moreover, the material issue here is whether and what infringement analysis occurred before filing the claim, not after Verve commenced its actions against Hypercom. Permitting a witness to offer such an opinion unsupported by a sufficient factual foundation significantly increases the risk of misleading the jury. United States v. Dukagjini, 326 F.3d 45, 58 (2nd Cir. 2002) ("When an expert is no longer applying his extensive experience and a reliable methodology, Daubert teaches that the testimony should be excluded. Moreover, even if the testimony is admissible under Rule 702, it still must pass muster under Rule 403: Its probative value must not be substantially outweighed by unfair prejudice."), cert. denied, 124 S. Ct. 2832 (2004). The Ninth Circuit has noted that expert evidence can be both powerful and quite misleading because of the difficulty in evaluating it. Because of this risk, a trial judge in weighing possible prejudice against probative force under Rule 403 exercises more control over experts than lay witnesses. Jinro America Inc. v. Secure Investments, Inc., 266 F.3d 993, 1005 (9th Cir. 2001), quoting Daubert I, 509 U.S. at 595. In the Jinro case, the Ninth Circuit reversed the district court for failing to exclude expert testimony under Rule 403. 266 F.3d at 1005 ("[W]e conclude that the district court abused its discretion in admitting Pelham's testimony for two reasons: it was not reliable and, in any event, it was unduly prejudicial and should have been excluded under Rule 403.").
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VI.
CONCLUSION For the foregoing reasons, because Omron is precluded from using the testimony
of James Dunlop, his "Patent Analysis Report" submitted as Exhibit 9 to Omron's Second Motion for Summary Judgment does not constitute inadmissible evidence. Such "Patent Analysis Report" cannot be part of any summary judgment record considered by this Court. Hypercom respectfully requests the Court enter an Order striking (1) Dunlop's Report from the record in its entirety (Docs. #138 and #139 at Exhibit 9 thereto); together with all references thereto on page 17 of Omron's summary judgment motion (Doc #137 at p. 17), Paragraphs 113-117, and 119 of Omron's Statement of Facts (Docs # 138 and #139), and the DVD submitted to the Court (labeled as "ICE 6000, Credit Card Movie/Debit Transaction"). Omron also should be precluded from directly introducing either the testimony of Dunlop or his report at trial, or from introducing his testimony or report through others at trial. RESPECTFULLY SUBMITTED this 14th day of September, 2006. SNELL & WILMER L.L.P. By s/Monica A. Limón-Wynn Sid Leach Monica A. Limón-Wynn SNELL & WILMER L.L.P. One Arizona Center Phoenix, AZ 85004-2202 Attorneys for Plaintiff Hypercom Corporation
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CERTIFICATE OF SERVICE I hereby certify that on September 14, 2006, I electronically transmitted the foregoing HYPERCOM CORPORATION'S MOTION TO STRIKE INADMISSIBLE EVIDENCE AND TO PRECLUDE TESTIMONY OF JAMES DUNLOP to the Clerk's Office using the ECF System for filing and transmittal of a Notice of Electronic Filing to the following ECF registrants: David P. Irmscher John K. Henning, IV BAKER & DANIELS 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204 Phone: 317-237-1317 Fax: 317-237-1000 [email protected] [email protected] Paul Moore Ray K. Harris FENNEMORE CRAIG, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012-2913 Phone: 602-916-5414 Fax: 602-916-5614 [email protected] [email protected] Attorneys for Defendant Omron Corporation s/ Monica A. Limón-Wynn
1879241.3
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