United States District Court, E.D. Louisiana
ORDER & REASONS
E. Fallon U.S. District Court Judge
the Court are several motions: (1) Defendant Donald
Rulh's Motion for Partial Summary Judgment, in which Mr.
Rulh also moves the Court to strike Plaintiff's expert,
Mr. Jason MacMorran, R. Doc. 209; (2) a Motion for Partial
Summary Judgment filed by Plaintiff Complete Logistical
Services, LLC (“CLS”), R. Doc. 229; (3) CLS'
motion to Exclude the Testimony of Mr. Athen M. Sweet, R.
Doc. 231; and (4) Defendant Donald Rulh's Motion for
Summary Judgment, R. Doc. 239. Each motion is opposed, R.
Docs. 248, 245, 255, 252, and the parties have offered
replies, R. Docs. 271, 275, 278, 273. The Court heard oral
argument on the motions on June 4, 2019. R. Doc. 300. Because
the motions are interrelated, the Court rules on them
provides contract labor to various marine industries. It
alleges its former member, Defendant Rulh, breached his
fiduciary duties to CLS, misappropriated CLS' assets,
damaged CLS' image, and took confidential and proprietary
information after he was removed from the LLC by its
remaining members. R. Doc. 98 at 1-3.
verified complaint, CLS alleges that, as a result of Mr.
Rulh's allegedly egregious conduct-specifically, his
failing to collect payments from clients; refusing to
reimburse the LLC for money he borrowed to refinance his
private home; arriving intoxicated to company events; and
changing the locks on the CLS office without first discussing
the matter with the other LLC members-the other three members
of CLS voted to treat Mr. Rulh as an assignee of the Company,
thereby revoking his authority to manage the business or act
unilaterally on its behalf. Id. at 4-6. CLS alleges
that after Mr. Rulh was stripped of this authority, he stole
from CLS confidential information including financial
statements, customer lists, and sales records while the other
members were at a company crawfish boil. Id. at 8.
According to CLS, these documents were printed, scanned, and
then emailed to Mr. Rulh's personal email account.
Id. at 8. CLS further alleges Mr. Rulh took this
information intending to start a competing business with his
co-Defendants. Finally, Plaintiff alleges Mr. Rulh took
$222, 000.00 from the LLC's bank account without
authorization. Id. at 2. According to CLS, this
resulted in the company's inability to pay holiday
bonuses to its employees, including Mr. Scott Coker, head of
CLS' diving division. Id. CLS submits Mr. Coker
left CLS because he did not receive a bonus. Id.
voting to make Mr. Rulh an assignee of the company, on July
23, 2018, the remaining CLS members “availed themselves
of their rights in the CLS Operating Agreement to expel Mr.
Rulh from CLS membership” and obtained a financial
report that valued Mr. Rulh's expulsion price at negative
$172, 664.00. Id. at 14. Ultimately, the remaining
members of CLS agreed to offer Mr. Rulh an expulsion price of
$3, 333.00 for his 33% membership interest in CLS.
Id. at 4.
on this factual background, CLS brings claims against Mr.
Rulh for violations of the Defend Trade Secrets Act
(“DTSA”); Louisiana Uniform Trade Secrets Act
(“LUTSA”); Computer Fraud and Abuse Act
(“CFA”); Louisiana Unfair Trade Practices Act
(“LUTPA”); and for unjust enrichment; breach of
fiduciary duties, duty of loyalty, and duty of due care;
conversion; conspiracy; and fraud. Id. at 3.
Finally, CLS seeks a declaration “that the expulsion
proceedings were proper in all respects and confirming that
Mr. Rulh is no longer a member of CLS.” Id. at
7, 2018, Mr. Rulh answered the complaint and filed
counterclaims against CLS and a third-party complaint against
CLS members Spencer Sens and Natchez Morice, III. R. Doc. 30.
On August 21, 2018, the Court granted Mr. Sens and Dr.
Morice's motion to strike Defendants' third party
claims against them. R. Doc. 94. On May 2, 2019, Mr. Rulh
filed an amended counterclaim, asserting a breach of contract
claim as well as seeking a declaratory judgment that the
expulsion price offered by CLS did not comply with the terms
of the Operating Agreement. R. Doc. 237.
motions presently before the Court mostly overlap. The
parties both move to strike the other's expert, R. Docs.
209, 231, and both seek summary judgment on the issue of
whether the expulsion price offered to Mr. Rulh complied with
the terms of the CLS Operating Agreement, R. Docs. 209, 229,
239. Finally, Mr. Rulh seeks summary judgment on
Plaintiff's remaining claims, namely its DTSA, CFAA,
LUTSA, and LUTPA claims.
facts relevant to the instant motions are largely undisputed.
By April 23, 2014, CLS consisted of four members: Mr. Rulh,
Mr. Spencer Sens, Dr. Natchez “Trey” Morice III,
and Dr. Brett Casey. On January 12, 2018, pursuant to section
10.3 of the CLS Operating Agreement, Mr. Sens, Dr. Morice,
and Dr. Casey voted to initiate expulsion proceedings against
Mr. Rulh. These proceedings took the form of three meetings.
The first meeting, held January 22, 2018, proceeded in two
parts. First, Mr. Sens, Dr. Morice, and Dr. Casey
“agree[d] by vote that [Mr. Rulh] ha[d] caused direct
harm to [CLS]” and thereafter voted to immediately
treat Mr. Rulh “as an assignee of [CLS] for all
purposes.” See CLS Operating Agreement, §
10.3. The members then scheduled the second meeting for
February 26, 2018. Having set the second meeting, the CLS
Operating Agreement allowed Mr. Rulh to “make a
specific request to [CLS] to receive computer generated
financial reports so that he may have an independent
evaluation at his own cost if he so chooses.”
Id. Mr. Rulh did not request financial documents
from the company.
second meeting, held February 26, 2018, Mr. Sens, Dr. Morice,
and Dr. Casey “agree[d] by vote to have a financial
evaluation of [Mr. Rulh's] interest, ” authorizing
Postlewaithe & Netterville to provide CLS with a
financial valuation of Mr. Rulh's interest in CLS.
Id.; R. Doc. 98 ¶¶ 65, 67. Pursuant to
this authorization, Mr. Jason MacMorran of Postlewaithe
& Netterville completed a valuation of Mr.
Rulh's membership interest, ultimately concluding that
the appropriate expulsion price for Mr. Rulh was negative
$172, 664.00. Id. at 68. This valuation was
“sent out with the certified notice of the [third]
meeting, ” which the parties set for July 23, 2018.
event Mr. Rulh intended to introduce his own membership
valuation at the July 23, 2018 meeting, the CLS Operating
Agreement required Mr. Rulh to first request that the members
consider his independent evaluation. See CLS
Operating Agreement, § 10.3 (“If the offending
member wishes to introduce his own evaluation price at the
meeting, then he must request that his independent evaluation
should be considered.”). On July 6, 2018, Mr.
Rulh's counsel sent a letter to the remaining members of
CLS indicating that Mr. Rulh intended to introduce his own
evaluation prepared by Mr. Athen Sweet. R. Doc. 209-10 at 1;
see also R. Doc. 231-10 at 7. In his letter, Mr.
Rulh contended the “fair and proper evaluation for his
interest in CLS” was $7, 448, 891.00. R. Doc. 209-10 at
the July 23, 2018 meeting, however, Mr. Rulh stated his $7,
448, 891.00 price was “not an official valuation,
” and that he “need[ed] more information.”
R. Doc. 229-5 at 6. To clarify, Mr. Rulh's attorney
explained Mr. Rulh had obtained “discounted cash flow
analysis information” and “based upon that
analysis [made a good faith] estimate that [Mr. Rulh's]
share was in excess of $7.4 million.” Id. at
6. Nevertheless, thereafter, Mr. Rulh's attorney stated
Mr. Rulh was “standing down” on “the $7.4
million that was in [his] July 6 letter” and confirmed
that Mr. Rulh was not offering a specific valuation; rather,
Mr. Rulh's attorney explained the $7, 448, 891.00 was
“just [a] proposal.” Id. at 9. Mr. Rulh
and his counsel then left the meeting. Id. at 11.
Mr. Rulh's departure, the members of CLS passed the
following resolution pursuant to section 10.3 of the CLS
WHEREAS, the Members have determined Mr.
Rulh has caused direct harm to the Company and his conduct is
egregious enough to warrant a full expulsion by the Company;
NOW, THEREFORE, BE IT RESOLVED, that Mr.
Rulh is hereby expelled from the Company effective July 23,
2018 in accordance with Section 10.3 of the Operating
Agreement of the Company. . . .
WHEREAS, the Members have determined to pay
Mr. Rulh $3, 333.00 for his 33.3% equity interest in the
Company notwithstanding the Members' determination that
the Postlethwaite & Netterville valuation of Mr.
Rulh's 33.3% equity interest in the Company at a negative
$172, 664.00 is a correct valuation for such interest;
NOW, THEREFORE, BE IT RESOLVED, that the
Company purchase Mr. Rulh's 33.3% equity interest in the
Company [for] $3, 333.00 . . . .
Id. at 11-12.
Mr. Rulh was formally expelled from CLS, Mr. Athen Sweet,
whom Mr. Rulh now offers as an expert, prepared a valuation
report wherein he concludes Mr. Rulh's membership
interest in CLS is $6, 419, 000.00. R. Doc. 231-10 at 16.
Although Mr. Rulh no longer contests the fact of his
expulsion, R. Doc. 248-3 at 11-14, he maintains his
allegation that CLS failed to comply with the terms of the
CLS Operating Agreement with respect to setting his expulsion
among the disputes in this matter is the proper calculation
of Mr. Rulh's ownership interest and corresponding
expulsion price. CLS' expert, Mr. MacMannon, takes the
position that he appropriately calculated Mr. Rulh's
expulsion price as negative $172, 664.00, R. Doc. 229-8 at
24; Mr. Rulh's expert, Mr. Sweet, takes a different
position, setting Mr. Rulh's proper expulsion price at
$6, 419, 000.00, R. Doc. 231-10 at 16.
coming to his calculation, CLS expert Mr. MacMorran
“perform[ed] a business valuation of Mr. Rulh's
33.33 percent ownership interest, ” by calculating the
value of the company as a whole using the asset, income, and
market approaches. R. Doc. 229-8 at 13. Under these
approaches, Mr. MacMorran underwent his analysis comparing
CLS' “post-incident” and
“pre-incident” metrics and values. Id.
“The primary difference between the Pre-Incident and
Post-Incident forecasts [of CLS] was the treatment of
revenues from the diving division as a result of the
departure of Mr. [Scott] Coker attributable to [Mr.
Rulh's having taken $222, 000.00 out of the CLS bank
account without authorization].” Id. at
Using these valuation methods, Mr. MacMorran came to his
valuation “of a 100 percent ownership interest in the
Company on a Pre-Incident and Post-Incident basis.”
Id. at 18. Next, Mr. MacMorran applied reductions
for marketability and control to the post-incident value of
the company. Id. at 19-21. After calculating the
100% “Post-Incident non-marketable, non-controlling
interest value” of CLS, Mr. MacMorran extrapolated Mr.
Rulh's 33.33% interest in the company and reduced Mr.
Rulh's ownership interest value for diminution of value
losses and out of pocket costs, arriving at Mr. Rulh's
expulsion price of negative $172, 664.00. Id. at 24.
Sweet, Mr. Rulh's expert, took a different approach. In
coming to his valuation, Mr. Sweet underwent an analysis
using three methods to calculate the 100% ownership value of
CLS: (1) a discounted cash flow analysis, (2) a guideline
transaction indication of value, and (3) the guideline public
company indication of value. R. Doc. 231-10 at 16. He then
extrapolated Mr. Rulh's 33.33% interest. Id.
Notably, Mr. Sweet did not make any adjustments for lack of
control or marketability. Id. Additionally, Mr.
Sweet did not make any reduction for any losses to the
company's value allegedly caused by Mr. Rulh, as he
submits nothing in his analysis “indicat[ed] [Mr. Rulh
had caused CLS] any losses, whether actual or
speculative.” Id. at 17. Based on his
analysis, Mr. Sweet concluded the proper expulsion price for
Mr. Rulh is $6, 419, 000.00. Id.
relevant facts being largely undisputed, the case is ripe for
summary judgment. The Court first considers the parties'
motions to exclude their respective experts, R. Docs. 209,
231, before determining whether CLS complied with the terms
of the CLS Operating Agreement in coming to Mr. Rulh's
expulsion price, R. Docs. 209, 229, 239. Finally, the Court
analyzes whether CLS' remaining claims survive summary
judgment, R. Doc. 239.
Whether the Court Should Exclude Either Expert
motion, Mr. Rulh argues the Court should exclude the
testimony of Plaintiff's expert, Jason MacMorran, as Mr.
Rulh contends Mr. MacMorran's use of a fair market
valuation, wherein Mr. MacMorran applied discounts for
marketability and control, is contrary to the CLS Operating
Agreement and Louisiana law. R. Doc. 209-1 at 18. Further,
Mr. Rulh submits Mr. MacMorran also applied the improper
section of the CLS Operating Agreement-specifically, Section
11.3-in coming to his assessment. Id. Finally, Mr.
Rulh contends that, because Mr. MacMorran's
“valuation of Mr. Rulh's interest is premised on
inapplicable valuation methodology, ” and
“intentionally depress[es] the value of Mr. Rulh's
interest, ” Mr. MacMorran “has clearly shown an
inherent bias and lack of partiality” and his testimony
should therefore be stricken. Id. at 18-19.
opposition, CLS argues “Mr. Rulh does not point to any
‘deliberate, manifest, pervasive, and systematic bias
[by Mr. MacMorran] in selecting his data points, in adjusting
the data points, and in assigning weights to the data
points' that would render Mr. MacMorran's testimony
fundamentally unreliable.” R. Doc. 248 at 17. Thus, CLS
submits, because Mr. Rulh “merely challenges Mr.
MacMorran's legal authority to apply discounts, ”
he has not established that Mr. MacMorran's testimony is
fundamentally unreliable. R. Doc. 248 at 17. Accordingly, CLS
argues Mr. MacMorran's testimony should be permitted at
motion, CLS moves the Court to exclude Mr. Sweet as an
expert. R. Doc. 231-1. CLS takes issue with the methodology
employed by Mr. Sweet in coming to his valuation.
Id. at 2. According to CLS, although Mr. Sweet
purports to have applied standard industry calculations in
valuing CLS, “Mr. Sweet misapplies valuation
techniques, deviates from accepted valuation principles and
professional standards, applies data sources erroneously and
inconsistently, and selects biased data that inflates the
value of Mr. Rulh's interest.” Id. at 3.
Moreover, CLS contends Mr. Sweet's opinion exceeds his
expertise and contains impermissible conclusions of law.
Rulh opposes the motion, arguing the “legal
conclusions” offered by Mr. Sweet in his report are
statements “commonly made by experts, who are permitted
to determine the appropriate valuation methodology based on
the facts and circumstances of the case.” R. Doc. 255
at 17. Next, Mr. Rulh argues Mr. Sweet's opinions and
valuation are consistent with industry practice, pointing to
paragraphs 38-42 of Mr. Sweet's report, in which he
“discusses the merits of the various valuation methods
with consideration for the specific facts and circumstances
of this case.” Id. at 21. Finally, Mr. Rulh
argues Mr. Sweet is qualified to render these opinions, as
“Rule 702 does not require valuation credentials, an
active CPA license, or membership to any specific
organizations.” Id. at 20. Rather, because Mr.
Sweet's expertise will assist the trier of fact in making
its determination, Mr. Sweet's experience in the field of
business valuations passes muster. Id.
The Daubert Standard
admissibility of expert testimony is governed by Federal Rule
of Evidence 702, which provides that,
If scientific, technical, or other specialized knowledge will
assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert
by knowledge, skill, experience, training or education, may
testify thereto in the form of an opinion or otherwise, if
(1) the testimony is based on sufficient facts or data, (2)
the testimony is the product of reliable principles and
methods, and (3) the witness has applied the principles and
methods reliably to the facts of the case.
rule codifies the Supreme Court's decisions in
Daubert v. Merrell Dow Pharmaceuticals,
Inc., 509 U.S. 579 (1993) and Kumho Tire Co. v.
Carmichael, 526 U.S. 137 (1999).
threshold question in determining whether an individual may
offer expert testimony under Rule 702 is whether the
individual has the qualifications to do so. Fed.R.Evid. 702.
“Trial courts have ‘wide discretion' in
deciding whether or not a particular witness qualifies as an
expert.” Hidden Oaks Ltd. v. City of Austin,
138 F.3d 1036, 1050 (5th Cir. 1998) (quoting Ellis v.
K-Lan Co., 695 F.2d 157, 162 (5th Cir. 1983)). Under
Rule 702, “the expert is viewed, not in a narrow sense,
but as a person qualified by ‘knowledge, skill,
experience, training or education.'” Fed.R.Evid.
702 advisory committee's note.
from determining the qualifications of the expert, the Court
must act as a “gate-keeper” to ensure that the
proffered expert testimony is “both reliable and
relevant.” Wells v. SmithKline Beecham Corp.,
601 F.3d 375, 378 (5th Cir. 2010). “This entails a
preliminary assessment of whether the reasoning or
methodology underlying the testimony is scientifically valid
and of whether that reasoning or methodology properly can be
applied to the facts in issue.” Id. (quoting
Daubert, 509 U.S. at 592-93). With respect to
reliability, the Court's focus “must be solely on
principles and methodology, not on the conclusions that they
generate.” Daubert, 509 U.S. at 595.
the admissibility of expert testimony is challenged under
Daubert, the proponent of the evidence bears the
burden of proving that the testimony is reliable and
relevant. Moore v. Ashland Chem. Inc., 151 F.3d 269,
276 (5th Cir. 1998) (en banc). To meet this burden, a party
cannot simply rely on its expert's assurances that he has
utilized generally accepted scientific methodology.
Id. Rather, some objective, independent validation
of the expert's methodology is required. Id. In
this regard, however, it is not necessary for the proponent
of the evidence to prove that “the testimony is
factually correct.” Paz v. Brush Engineered
Materials, Inc., 555 F.3d 383, 388 (5th Cir. 2009).
a court's role as a gatekeeper does not replace the
adversary system. Daubert, 509 U.S. at 596.
“Vigorous cross-examination, presentation of contrary
evidence, and careful instruction on the burden of proof are
the traditional and appropriate means of attacking shaky but
admissible evidence.” Id. Proper deference is
to be accorded to the jury's role “as the arbiter
of disputes between conflicting opinions.” United
States v. 14.38 Acres of Land, 80 F.3d 1074, 1077 (5th
Cir. 1996) (quoting Viterbo v. Dow Chemical Co., 826
F.2d 420, 422 (5th Cir. 1987)). “As a general rule,
questions relating to the bases and sources of an
expert's opinion affect the weight to be assigned that
opinion rather than its admissibility and should be left for
the jury's consideration.” Id. (quoting
Viterbo, 826 F.2d at 422).
parties challenge the credentials of the other's expert,
their methodology, and perceived bias. Moreover, CLS
challenges the propriety of allowing Mr. Rulh's expert,
Mr. Sweet, to offer his legal interpretations of the CLS
Operating Agreement. The Court addresses each challenge in