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Hearts on Fire Co., LLC v. Circa, Inc.

United States District Court, D. Massachusetts

September 29, 2017

CIRCA, INC., Defendant.


          CABELL, U.S.M.J.

         The present lawsuit arises from a contract in which Hearts on Fire, LLC (“HOF”) agreed to provide jewelry to CIRCA, Inc. (“CIRCA”) in exchange for trade credits and media advertising. CIRCA was also permitted to charge a reasonable commission based on the cost of the media placement services. HOF contends that CIRCA charged an unreasonably high commission and alleges breach of contract and violation of M.G.L. c. 93A. HOF has moved to exclude the opinions and testimony of CIRCA's expert as contained in his initial report as well as his supplemental affidavit. For the reasons discussed below, both motions are DENIED to the extent the expert would intend to merely testify regarding industry standards and practices, but ALLOWED to the extent the expert would intend to offer legal conclusions or opinions as to HOF's state of mind.


         A. The Agreement

         The parties entered into a letter agreement (the “Agreement”) in June 2009. (Compl. ¶ 3). Under its terms, HOF was to provide CIRCA with wholesale merchandise, namely jewelry and diamonds, in exchange for trade credits based on the value of the merchandise provided. HOF could in turn then use the trade credits to obtain media advertising through CIRCA. (Id. ¶ 5). In addition, HOF reserved the right to direct CIRCA to purchase media advertising on its behalf, half of which HOF would pay for in cash and half of which could be invoiced against HOF's trade credit account. (Id. ¶¶ 6-7). In exchange for the media related services CIRCA would provide, the parties understood and agreed that it would charge HOF a “reasonable commission, ” although the Agreement did not explicitly indicate what that commission would be. (Id. ¶ 9). In December of 2009, the parties expanded the terms of the Agreement to allow HOF to obtain additional trade credits in exchange for additional wholesale merchandise. (Id. ¶ 12).

         Shortly after consummating the Agreement, HOF directed CIRCA to purchase and place advertising on its behalf. (Id. ¶ 11). CIRCA's invoices to HOF did not specify the cost of the advertising CIRCA placed or the commission it charged, because it claimed that the information was proprietary. (Id. ¶ 13). HOF alleges that CIRCA's commission was per se unreasonable under the Agreement because the commission was roughly equivalent to one half of the amount HOF would have paid had it purchased advertising space directly from the media outlet. (Id. ¶ 16). As noted above, the complaint alleges breach of contract and violation of M.G.L. c. 93A.

         B. The Kawer Report (Dkt. No. 37-2)

         In the course of discovery, CIRCA disclosed an expert report written by Sheldon Kawer (the “Kawer Report”). Kawer is a consultant in the barter industry and CIRCA retained him to assess whether “CIRCA violated accepted customs and practices in the barter industry.” Kawer's testimony is predominantly based on 48 years of professional experience in the barter industry, during which he was responsible for structuring and negotiating barter deals, drafting barter agreements, consulting clients, and purchasing magazine and advertising space on behalf of his barter clients. The Kawer Report contains an extensive explanation of the barter industry as a whole, including its customs, practices, and standards, as well as the process and principles of a barter transaction. In pertinent part, the Kawer Report discusses the term “media costs” in the context of a barter agreement, and how a media advertising transaction is generally structured under a barter agreement.

         The Kawer Report opines that CIRCA acted in accordance with barter industry standards in the course of its relationship with HOF. More particularly, the Kawer Report opines that: (1) the Agreement is a standard barter agreement in “most respects;” (2) documents and testimony from HOF executives show that the value of the products HOF used to compensate CIRCA was substantially below wholesale value, and HOF therefore obtained a significant advantage when it used its product as a form of payment; (3) CIRCA's profit and invoice markup did not violate barter industry standards; (4) HOF had the opportunity to freely negotiate the pricing of the services provided by CIRCA and to accept or reject its terms accordingly, which, as Kawer contends, is a standard practice in the barter industry; and (5) HOF was free to purchase advertising on its own rather than through CIRCA, which, as Kawer contends, is also a standard practice in the barter industry.

         C. The Kawer Affidavit (Dkt. No. 41)

         HOF moved to exclude the Kawer Report (Dkt. No. 36) and CIRCA responded by opposing the motion and attaching an affidavit submitted by Kawer (the “Kawer Affidavit”), presumably to address the alleged deficiencies HOF noted in its motion to exclude. (Dkt. No. 41). In pertinent part, the Kawer Affidavit reiterates and elaborates upon the opinions and conclusions asserted in the Kawer Report. In response to HOF's contentions that the Kawer Report is largely grounded on his own “say-so” without any supporting sources, Kawer explains that:

the standards, customs, and practices of the barter industry are not contained in peer reviewed articles or other academic sources and are not the result of any formal testing that can be replicated or reproduced. Instead, the industry has evolved over time through practice, and [Kawer] ha[s] learned the barter business, and the customs and practices of the industry, through engaging in hundreds of barter deals.

(Dkt. No. 41, ¶ 7).

         The Kawer Affidavit also avers that, independent of Kawer's extensive professional experiences in the field, there is “ample evidence” that a distinct barter industry exists, in the form of “industry pamphlets, websites, and other informal resources, ” which barter trade associations and major barter companies typically rely on. (Id. ¶ 12).

         The Kawer Affidavit also outlines the particular methodology Kawer employed in forming his opinions and conclusions. It explains that he conducted: (1) a careful review of the evidence in the record with respect to the parties' conduct and claims; (2) an analysis of the nature of the Agreement and the business relationship between the parties as to assess whether barter industry standards are applicable to the parties' conduct; and (3) an analysis of the parties' conduct in the context of the barter industry's standards, customs, and practices. (Id. ¶ 33).

         HOF moved to exclude the Kawer Affidavit on the ground that it is untimely because it was served after the deadline for expert disclosures, undermines the court's professed goal of streamlining discovery, and fails on its ...

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