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Learning Care Group, Inc. v. Armetta

United States District Court, D. Connecticut

June 12, 2016

LEARNING CARE GROUP, INC., Plaintiff/Consolidated Defendant,
v.
CARLENE ARMETTA, Defendant,
v.
DAVID ARMETTA and ASPIRA DIRECT MARKETING, LLC, Defendants/Consolidated Plaintiffs.

          RULING ON MOTION IN LIMINE AND VARIOUS TRIAL ISSUES

          VICTOR A. BOLDEN UNITED STATES DISTRICT JUDGE.

         Learning Care Group, Inc. ("LCG") has filed a motion in limine, ECF No. 146, seeking to preclude an amended expert report on damages offered by David Armetta and Aspira Marketing Direct, LLC ("Aspira") as well as evidence of damages based on lost profit and "disgorgement" measures. For the reasons that follow, LCG’s motion in limine, ECF No. 146, is GRANTED IN PART and DENIED IN PART. The Court will allow aspects of the amended expert report to be admitted at trial, as explained further below. It will also allow evidence of lost profits, to the extent they are calculated based on a proper methodology that is established at trial. The Court will preclude all evidence of disgorgement damages.

         The Court also has identified two issues it would like to resolve in advance of trial. First, it will not allow Mr. Armetta and Aspira’s expert to testify about theories of causation, legal theories of recovery, or about which causes of actions apply to which damages theories. Such testimony would be inappropriate for an expert. Second, because no party to this case has filed an answer, the jury will not be instructed on any affirmative defenses, including LCG’s proposed affirmative defenses of unclean hands and mitigation of damages.[1]

         I. Background

         LCG owns and operates childcare centers. Ruling on Mots. for Summ. J. 3, ECF No. 126. Mr. and Mrs. Armetta were in the business of providing various types of marketing services, including direct mail, and created Aspira, a limited liability company, to engage in this business. Id. at 1, 3.

         LCG, Mr. Armetta, and Aspira went into business together to develop a direct mail marketing campaign for LCG Id. at 3. After the dissolution of their business relationship, LCG filed a lawsuit against Mr. Armetta, Mrs. Armetta, and Aspira and Mr. Armetta and Aspira filed a separate lawsuit against LCG.[2] This Court consolidated the lawsuits to proceed together in this case and has scheduled a trial on the various remaining disputed issues.

         Mr. Armetta and Aspira initially disclosed an expert report authored by Daniel Cenatempo on August 25, 2014. The initial report contains an assessment of damages based on Aspira and Mr. Armetta’s lost profits, which Mr. Cenatempo indicates apply to their legal claims of defamation, commercial disparagement, and a violation of the Connecticut Unfair Practices Act ("CUTPA"), Conn. Gen. Stat. § 42-110a et seq. LCG’s Ex. 1, Initial Damages Assessment, ECF No. 146 at 25.[3] These calculations project the money Aspira and Mr. Armetta would have made from their continued business relationship with LCG and other possible clients they contend LCG prevented them from acquiring. Id. at 40-44, 144-51. The lost profit figure also includes the value of some invoices issued while Aspira worked for LCG that were allegedly never paid. Id. at 39.

         The initial report also contains calculations of damages called "LCG’s Unjust Profits, " which consists of a portion of LCG’s profits derived from new student enrollments that Mr. Cenatempo opines came from the direct mail marketing campaign. Id. at 45-58. To calculate these damages, Mr. Centatempo calculated LCG’s profits from new enrollments allegedly caused by the direct mail marketing program. He then took a percentage of those profits that he attributes to Aspira and the Armetta’s direct mail marketing efforts. The report indicates that this latter measure applies to the claims of unjust enrichment, quantum meruit, and a violation of CUTPA. Id. at 25. The parties refer to this measure of damages of damages as disgorgement damages.

         Mr. Cenatempo’s initial report also opines that LCG’s actions caused these various losses and that his calculations represent appropriate measures of damages for the legal claims he identifies. See e.g. id at 22 (offering as one of his opinions that "Aspira and David Armetta lost profits and income due to the wrongful acts of LCG…."); id at 22 (offering as another opinion that David Armetta and Aspira were unlawfully treated and not fully compensated for their work on the Direct Mail Program."); id at 23 (opining that "LCG was unjustly enriched by taking the benefits of the Direct Mail Program without fully compensating Carlene Armetta, David Armetta and Aspira"); id at 40 ("There is no cause for David Armetta’s loss of income other than LCG’s defamation and violation of [CUTPA]…"). The report also provides some general analysis of the legal recovery principles governing tort and contract causes of action. Id. at 28-29.

         Roughly one month after the report was disclosed, the Court dismissed the commercial disparagement, defamation, and CUTPA claims in deciding the parties’ motions to dismiss. Order on Mot. to Dismiss 16-37, 37-40, 45-50, ECF No. 71. Thus, the causes of action upon which Mr. Cenatempo based his lost profits analysis were dismissed from the case in their entirety. The Court also limited the measure of damages available for Mr. Armetta and Aspira’s quantum meruit and unjust enrichment claims to the value of the services they provided and which LCG allegedly failed to compensate. Id. at 55-56 ("Mr. Armetta and Aspira’s claim for quantum meruit and unjust enrichment, limited to the amount of either the promised payment or the reasonable value of their services, is sustained and Defendant’s Motion to Dismiss is DENIED."). It dismissed Mrs. Armetta’s quantum meruit and unjust enrichment claims without prejudice, and Mrs. Armetta did not re-plead the claims. Id. at 51-54. Thus, the Court dismissed the legal theories upon which Mr. Cenatempo indicated his disgorgement damages analysis was based. No answers were filed after the Court’s rulings on the motions to dismiss.

         On July 1, 2015, the Court permitted Mr. Armetta and Aspira to amend their Complaint and add claims of negligent misrepresentation and fraud against LCG. Order, ECF No. 98. Discovery had ended on December 1, 2014, Amended Scheduling Order, ECF No. 62, and no party moved to reopen discovery or extend the deadline for discovery after the Amended Complaint was filed.[4] Nor did LCG file an answer responding to the Amended Complaint.

         On May 12, 2016, five weeks before trial and over one year after discovery had closed, Mr. Armetta and Aspira disclosed an amended damages assessment, which is dated May 9, 2016, and which now garners LCG’s objection. LCG’s Ex. 2, Am. Damages Assessment, ECF No. 146 at 162. The amended report indicates that it replaces the previous report "due to changes in counts in the Second Amended Complaint and new information that has become available since the production of my first report." LCG’s Ex. 2, Am. Damages Assessment, ECF No. 146 at 165.

         The amended report provides a lost profits calculation that reflects the profits Aspira and Mr. Armetta would have made from continuing their relationship with LCG. Id. at 173-80. The amended report also includes in its calculation the value of Aspira’s unpaid invoices, as the initial one did. Id. at 169. Mr. Cenatempo opines that the lost profits "apply to the Common Law Fraud and Negligent Misrepresentation counts" and that the unpaid invoices aspect applies to the "Unjust Enrichment and Quantum Meruit counts." Id The amended report also provides analysis of "LCG’s wrongful profits" or disgorgement damages, which reflects the portion of LCG’s overall profits derived from new enrollments from the direct mail marketing scheme that Mr. Cenatempo attributes to the efforts of Aspira and Mr. Armetta. Id. at 181-91. As with the initial report, these damages are calculated by examining the profits from new student enrollments allegedly caused by the direct marketing plan and taking a percentage of those profits to reflect the amount for which Mr. Cenatempo believes Aspira and Mr. Armetta are responsible. Id. The report also states that the calculations pertaining to the "disgorgement damages" apply to the "Common Law Fraud and/or Unjust Enrichment" claims. Id. at 169.

         Finally, as with the initial report, the amended report provides opinions on causation and the legal recovery principles governing tort and contract-based causes of action. See e.g. Id. at 168 ("Aspira lost sales and profits and David Armetta lost income due to the wrongful acts of LCG."); id. at 169 ("It is my understanding that LCG can be disgorged of its wrongfully made profits if it is found liable for Common Law Fraud and/or Unjust Enrichment."); id. at 175 ("Aspira’s lost profits and David Armetta’s lost income were proximately caused by LCG’s wrongful acts and are recoverable damages."); id. at 171-72 (discussing "recovery principles").

         The Court will first address the viability of the lost profits and disgorgement damages theories in this case generally. It will then discuss the timeliness of the amended expert report and the admissibility of the testimony it contains. Finally, it will discuss the implications that stem from the fact that no party has filed an answer in this case.

         II. Viability of Lost Profits Damages Theory

         Aspira and Mr. Armetta claim that they are entitled to lost profits if they prevail on their fraud and negligent misrepresentation claims. Under Connecticut law, these claims entitle successful plaintiffs to recover damages caused by the actions that made the defendant liable. See Kilduff v. Adams, Inc., 219 Conn. 314, 323 (1991) ("A plaintiff in a fraud action is entitled to recover ‘any consequential damages resulting directly from the fraud.’") (citations omitted); Leisure Resort Technology, Inc. v. Trading CoverAssocs., 277 Conn. 21, 33 (2006) (in a fraud action, the measure of damages is either the "benefit of the bargain" or "out-of-pocket measure"); Ridgeway v. Royal Bank of Scotland Grp., Civil Action No. 3:11-cv-976 (VLB), 2013 WL 1985016, at *27 (D. Conn. May 13, 2013) (noting that pecuniary losses and noneconomic damages caused by the negligent misrepresentation are recoverable on a successful negligent misrepresentation claim); Restatement (Second) of Torts ยง552B(1) (1977) ("The damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him ...


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