Tenth Circuit Search For A "Unifying Theory" Of The Daubert Gatekeeping Role

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Once a Daubert inquiry is made, what should the trial court include in the record? The Tenth Circuit recently identified at least three factors that it employs in assessing the adequacy of a trial judge's Daubert gatekeeping in the trade secret misappropriation trial in StorageCraft Technology Corp. v. Kirby, _ F.3d _ (10th Cir. March 11, 2014) (No. 12-4182)

The Federal Evidence Blog has previously noted that many circuits generally recognize a trial courts' discretion on the form and necessity of conducting a Daubet inquiry to consider the admissibility of expert evidence under FRE 702. See, e.g., Reversal Based On "Abdication" Of Gatekeeping Role On Expert Testimony. When expert evidence is contested, the trial court creates a record by making findings and clarifying its ruling. The Tenth Circuit recently illuminated the issues that may arise on this question in a recent case.

In the case, defendant Kirby misappropriated a trade secret from "StorageCraft," the computer software company he started and had worked for. The secret he revealed to a rival company was "the computer source code" StorageCraft used for building its products. Having obtained the plaintiff's trade secret, the rival was able to "quickly produce[ ]" a competing product. The management of StorageCraft, which no longer included defendant Kirby, sought relief for the misappropriation of its trade secret. StorageCraft, __ F.3d at __.

Expert Testimony As To A "Reasonable Royalty"

Under the applicable state law (Utah), a defendant's liability for trade secret theft was the "reasonable royalty" for the trade secret taken. This measure was defined as "the price that would be set by a willing buyer and a willing seller" of a license in the trade secret. Based on the evidence proffered by the parties, the jury estimated a reasonable royalty to be about $2.92 million dollars. The defendant appealed contending that the court should not have admitted the plaintiff's expert who testified as to price of a license. StorageCraft, __ F.3d at __.

One evidence issue that formed part of the defendant's appeal concerned the plaintiff's expert witness testimony regarding the size of the reasonable royalty. The defendant complained that the plaintiff's expert failed to present a reliable estimate of the cost the plaintiff incurred in developing the trade secret computer code that the defendant revealed. According to the circuit, the defendant:

doesn’t dispute the principle that StorageCraft could have sought to take into account its development costs when negotiating a license for its intellectual property. Instead, he attacks the particular assumptions the expert used to calculate those costs. For example, the expert assumed developers worked 40-hour weeks over 15 to 20 months to develop the source code and Mr. Kirby says this assumption is too high, unsupported by the evidence. Mr. Kirby complains as well that the district court failed to discharge its Daubert duties when it dismissed his complaints summarily....

StorageCraft, __ F.3d at __ (citing Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) (FRE 702 imposes a "gatekeeping" role for trial court to admit expert scientific testimony, including that expert evidence is not only relevant, but reliable and assists trier of fact)). Instead, the trial court admitted the challenged expert testimony noting that the defendant's objections to the expert's calculations and approach were not a matter of admissibility, but rather that they "'raised great points for cross-examination.'” StorageCraft, __ F.3d at __.

The Need For A "Unifying Theory Or Principle"

The Tenth Circuit noted that "[w]hen a party objects to proposed expert testimony, the court 'must adequately demonstrate by specific findings on the record' that it has taken these gate-keeping responsibilities seriously." StorageCraft, __ F.3d at __ (quoting Goebel v. Denver & Rio Grande W. R.R. Co., 215 F.3d 1083, 1088 (10th Cir. 2000)). In evaluating the trial court's Daubert assessment, the circuit acknowledged that it had set out no "unifying theory or principle" that could be used in considering the adequacy of the court's gatekeeping. The question was whether the trial judge faithfully discharged its gatekeeping responsibilities? The circuit concluded that in StorageCraft the trial court had done so. StorageCraft, __ F.3d at __.

In assessing the trial court's Daubert gatekeeping function, the circuit suggested that expectation of "some unifying theory or principle for discerning the precise point at which a district court's gate-keeping findings prove sufficient," was an illusive goal. But this did not mean that in conducting a Daubert hearings there were not some standards to which the courts should adhere. In an attempt to suggest some of these considerations might be, the circuit identified "several lessons" which "emerge[d] from a review of our existing decisions." StorageCraft, __ F.3d at __.

Three "Lessons" For Evaluating Daubert Gatekeeping

The circuit identified three "lessons" that should be applied in establishing a record for determining the admissibility of expert evidence. These three lessons included:

  • Record Of The Application Of The Relevant Law: A trial court "must furnish enough of a record" so that the appellate court can see that it "properly applied the relevant law." This required that the trial court not merely offer conclusions: "it is not sufficient for a district court simply to say on the record that it has decided to admit the expert testimony after due consideration." StorageCraft, __ F.3d at __ (citing United States v. Avitia–Guillen, 680 F.3d 1253, 1259 (10th Cir. 2012) ("[W]e have never addressed exactly how extensive admissibility findings must be. The key inquiry is whether the appellate court can determine whether the district court “properly applied the relevant law.”); United States v. Roach, 582 F.3d 1192, 1207 (10th Cir. 2009) (statements simply do not include any factual findings indicating the basis of the court's determination that Miller met the requirements of Rule 702))
  • Meaningful Discussion Of Daubert Objections: The second "lesson" teaches that the trial judge "must reply in some meaningful way to the Daubert concerns" any objecting parties "has raised." The circuit supplied several examples of what this meant, including:
    1. Reliability Objections: When "the reliability of an expert's methodology is at issue, it's not good enough for the district court to stress the expert's qualifications. (citing Dodge v. Cotter Corp., 328 F.3d 1212, 1227 (10th Cir. 2003) (the court's findings relative to Dr. Dollinger's credentials and qualifications are simply insufficient by themselves to fulfill the gatekeeper function. As we have emphasized, “a district judge asked to admit scientific evidence must determine whether the evidence is genuinely scientific, as distinct from being unscientific speculation offered by a genuine scientist.”))
    2. Proportionality: The circuit recommended that a trial court's discussion of FRE 702 factors should also focus on the significance the parties gave to the issues. The circuit noted that there was no need for a discussion "in every case [of] all reliability factors noted in Daubert or Kuhmo. When all "other things [are] equal, more complicated challenges demand lengthier discussions while less complicated challenges require less discussion." StorageCraft, __ F.3d at __ (citing Goebel v. Denver & Rio Grande W. R.R. Co., 215 F.3d 1083, 1088 (10th Cir. 2000) (“Without specific findings or discussion on the record, it is impossible on appeal to determine whether the district court carefully and meticulously reviewed the proffered scientific evidence or simply made an off-the-cuff decision to admit the expert testimony.” ); United States v. Avitia–Guillen, 680 F.3d 1253, 1259 (10th Cir. 2012) (distinguishing between “a challenge to an expert's methodology in a complicated area of medical science” and a challenge to a fingerprint “expert's qualifications to testify to a commonly used method of identification”); Dodge v. Cotter Corp., 328 F.3d 1212, 1228 (10th Cir. 2003) (stressing “the novelty of the [experts'] medical causation theory”)
    3. Flexibility: Even though the trial court should observe some sense of proportionality to the weight of the parties' arguments, this did not condemn the trial judge to merely parroting the factors raised by the parties. The Tenth Circuit noted that while addressing the parties Daubert/ Kuhmo contentions, a district court doesn't have to discuss in every case all of the reliability factors that the Supreme Court identified in Daubert and Kuhmo" because "[a] district court's gate-keeping function is more flexible" and the court need only "focus its attention on the specific factors implicated by the circumstances at hand." The Circuit concluded the discussion of this matter with the caution that "... other things [being] equal, more complicated challenges demand lengthier discussions while less complicated challenges require less discussion." StorageCraft, __ F.3d at __ (citing Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141-42 (1999) (extending Daubert to technical and other specialized expert testimony)); Goebel, 215 F.3d at 1088; Avitia–Guillen, 680 F.3d at 1259 (distinguishing between “a challenge to an expert's methodology in a complicated area of medical science” and a challenge to a fingerprint “expert's qualifications to testify to a commonly used method of identification”); Dodge, 328 F.3d at 1228 (stressing “the novelty of the [experts'] medical causation theory”))
  • Harmless Error Assessment: The third "lesson" that the circuit noted was as long as the trial court sufficiently engaged in the Daubert inquiry and that this was reflected on the record, it was very hard for the trial court to err. "[A] district court's insufficient gate-keeping findings may not warrant reversal if the appellee can persuade us the error was harmless. If, for example, it is readily apparent from the record that the expert testimony was admissible, it would be pointless to require a new trial at which the very same evidence can and will be presented again." StorageCraft, __ F.3d at __ (citing Kinser v. Gehl Co., 184 F.3d 1259, 1271–72 (10th Cir. 1999) ("while we believe much of the expert testimony rendered by Purswell and Kennedy should have been excluded under a Daubert analysis, we conclude any error ultimately was harmless and a new trial is thus unwarranted."), abrogated in part on other grounds by Weisgram v. Marley Co., 528 U.S. 440 (2000)). This third lesson also considers the significance of the expert evidence to the case's result. "Even if ... wrongly admitted," the case might be such that the "other competent evidence is ‘sufficiently strong’ to permit the conclusion that the improper evidence had no effect on the decision.” (citing Goebel, 215 F.3d at 1089 (internal quotation mark omitted)). In short, whether admitted or excluded by mistake, "we will not demand a new trial when the existing one reached the right result."

Application

In considering these "lessons" in the case, the circuit affirmed the admission of the expert testimony. The circuit considered two primary objections. The first challenge raised on appeal was really a legal argument, "amounting less to a Daubert objection than a sort of renewal of his motion for judgment as a matter of law." The circuit found no error in the trial court's construction of the state trade secret statute and the royalty damages provision. The second argument concerned "various assumptions the expert employed when seeking to quantify the costs StorageCraft incurred in developing its computer code." However, the circuit ultimately concluded that any error was harmless. As the circuit explained:

As we’ve seen, by their nature some objections to expert testimony don’t require from the district court more than a brief reply, and Mr. Kirby’s objections to the expert’s development cost assumptions may well fall into this category. But even if we assume for argument’s sake that the district court’s exegesis wasn’t detailed enough to discharge its gate-keeping duties, we are confident any error here was harmless. Returning by way of example to the expert’s assumption about the time required to develop the computer source code, Mr. Kirby’s own deposition testimony confirms that he and three other engineers devoted a very large number of hours to its creation over a 15 to 20 month period. The expert’s assumption, then, was grounded in record evidence, Mr. Kirby’s own testimony belies his methodological complaint, and we can rest assured that more words from the district court would not have altered the admissibility of the expert’s evidence.

StorageCraft, __ F.3d at __.

Conclusion

The StoneCraft highlights that twenty years after Daubert's construction of FRE 702, the range of considerations applicable to the trial court's admission or exclusion of expert evidence are considerable. The trial court still retains substantial discretion on how it fulfills its gatekeeping responsibility. While the proponent of expert testimony (as with any other evidence) bears the burden to establish its admissibility, much of the Tenth Circuit framework is focused on addressing the opponent's objections and whether any (assumed) error may be harmless. Ironically, after a careful discussion of "lessons" to be learned from its expert evidence jurisprudence, ultimately the circuit needed only to consider whether any error was harmless.

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