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Cave Consulting Group, Inc. v. Optuminsight, Inc.

United States District Court, N.D. California

January 10, 2020





         In this antitrust and malicious prosecution action arising from patent infringement claims asserted in previous litigation, Plaintiff Cave Consulting Group, Inc. (“CCGroup”) now moves for reconsideration of a previous order on summary judgment limiting its damages, and for relief from a scheduling order to allow CCGroup to present a new expert report on damages. Defendant OptumInsight, Inc. moves to preclude CCGroup from calling OptumInsight's lead counsel as a witness at trial. In addition to the parties' motions, the Court provided notice of its intent to consider entering summary judgment sua sponte under Rule 56(f) of the Federal Rules of Civil Procedure. The Court held a hearing on January 10, 2020. For the reasons discussed below, CCGroup's motion for reconsideration is GRANTED, but the Court now grants summary judgment imposing a substantially similar limitation on damages sua sponte under Rule 56(f). The remaining motions are DENIED.[1]

         II. BACKROUND

         On August 28, 2019, the Court issued an order resolving the parties' motions for summary judgment and Daubert motions to exclude expert testimony. See Order re Mots. for Summ. J. & Mots. to Exclude Expert Testimony (“MSJ Order, ” dkts. 354 (sealed), 363 (public)).[2] This order assumes the parties' familiarity with the facts and history of the case, which are addressed in greater detail in that summary judgment order.

         OptumInsight had moved to exclude the opinions of CCGroup's expert witness Dr. Ryan Sullivan, including opinions regarding damages arising from CCGroup's exclusion from the market for standalone medical claim grouper software.[3] Dr. Sullivan had offered a convoluted analysis that first estimated, based on very little underlying data, the performance of certain companies that he identified as comparable to CCGroup in the separate market for physician efficiency software, and used a formula based on the estimated performance of those companies to project CCGroup's performance in the standalone grouper market. Among other rulings, the Court excluded Dr. Sullivan's opinions on the measure of CCGroup's damages, although it allowed opinions addressing more generally the fact of CCGroup's purported injury. MSJ Order at 11-21. Based on the exclusion of those opinions, the Court also granted summary judgment for OptumInsight on the issue of whether CCGroup could show damages caused by its exclusion from the grouper market. The Court allowed CCGroup to pursue antitrust damages based only on expenses incurred in earlier litigation in which OptumInsight accused CCGroup of infringing OptumInsight's patents.

         CCGroup sought leave to file a motion for reconsideration on the basis that the Court improperly granted judgment sua sponte on an issue not raised in OptumInsight's motion for summary judgment, and the Court granted CCGroup leave to do so. In granting leave, the Court also provided notice of its intent to consider granting judgment on the issue of damages sua sponte under Rule 56(f) of the Federal Rules of Civil Procedure if CCGroup prevailed in showing error in the earlier ruling. See Oct. 4, 2019 Order (dkt. 366). CCGroup has now filed its motion for reconsideration, as well as a motion seeking relief from the expert discovery deadlines imposed by the Court's scheduling order, to allow CCGroup to offer a new report from Dr. Sullivan presenting a different theory of damages.

         Separately, OptumInsight has filed a motion seeking to preclude CCGroup from calling OptumInsight's lead trial counsel, Peter Lancaster, as a witness at trial.


         A. Arguments

         1. CCGroup's Motion for Reconsideration

         CCGroup asks the Court to vacate the portion of its previous order on summary judgment holding that CCGroup cannot recover damages based on its exclusion from the market for grouper software. See generally Pl.'s Mot. for Reconsideration (“Reconsideration Mot., ” dkts. 373-5 (public), 373-6 (sealed)). CCGroup first argues that the Court erred in granting judgment on that issue because OptumInsight did not assert a deficiency in proof of damages (as opposed to the separate issue of antitrust injury) in its motion, but acknowledges that the Court has since provided notice of intent to grant partial summary judgment sua sponte under Rule 56(f). See Id. at 1-3.

         CCGroup cites cases recognizing wide latitude in antitrust plaintiffs' permissible means of proving damages, including one district court decision from the Western District of Oklahoma holding that the exclusion of expert testimony did not necessarily preclude the plaintiff from recovering some form of damages. Id. at 4-5 (citing, e.g., Champagne Metals v. Ken-Mac Metals, Inc., No. CIV-02-0528-HE, 2008 WL 5205204, at *14 (W.D. Okla. Dec. 11, 2008)). CCGroup concedes that “a jury may not award purely speculative damages, ” but contends that even without Dr. Sullivan's excluded opinions, it can offer sufficient evidence to present some reasonable basis for an estimate of damages. Id. at 6. According to CCGroup, its showing of antitrust injury, which the Court held sufficient, is enough for the jury to consider the question of damages, particularly given the availability of nominal damages. Id. at 15-16.

         CCGroup identifies the following categories of evidence as capable of supporting an award of market damages: (1) evidence regarding the nature and scope of the standalone grouper market, which shows that the market is nationwide and includes few actual competitors, id. at 7; (2) evidence of OptumInsight's revenue and profit from the sale of its grouper product, id. at 7-8; (3) evidence of OptumInsight's pricing of its grouper product, including OptumInsight's purported ability to maintain a higher profit margin on that product than on other products, id. at 8; (4) evidence that CCGroup would have been capable of licensing its grouper product to customers as early as 2003, establishing a temporal span for potential damages, id. at 8-9; (5) evidence that OptumInsight's conduct enforcing and threatening to enforce its patents limited CCGroup's participation in the market, id. at 9; (6) testimony from Dr. Sullivan-which the Court's previous order permitted-that OptumInsight's patents enabled it to dominate the standalone grouper market, among other evidence supporting the same conclusion, id. at 10-11; (7) testimony from Dr. Sullivan and evidence from market participants that CCGroup's grouper product was on its merits a viable competitor to OptumInsight's product, id. at 11-12; (8) the actual costs, pricing, and profit margins of CCGroup's product during the time period at issue, id. at 12-13; (9) evidence of barriers to entry and limited participation in the market for standalone groupers, id. at 13-14; and (10) the opinions of OptumInsight's own damages expert Richard Bero, id. at 14- 15.

         CCGroup noted at the time it filed its motion for reconsideration that it also intended to seek leave to file an amended expert report, but did not argue that the potential amended report is itself a basis for reconsideration of the Court's summary judgment order. See Id. at 16.

         2. OptumInsight's Opposition to Reconsideration

         OptumInsight argues that the Court was correct to grant summary judgment on the issue of market damages and should not reconsider that decision. See generally Def.'s Opp'n to Pl.'s Mot. for Reconsideration (“Reconsideration Opp'n, ” dkts. 387-10 (public), 387-11 (sealed)). As a procedural matter, OptumInsight argues that CCGroup has not shown circumstances warranting reconsideration beyond mere disagreement with the Court's previous decision, which is not sufficient under this Court's local rules and past practice. Id. at 2-3.

         While OptumInsight disputes CCGroup's characterization that the Court granted judgment on the issue of damages “sua sponte, ” see Id. at 5, OptumInsight does not actually argue that it moved for summary judgment on that issue or identify any such argument in its motion for summary judgment. Instead, OptumInsight argues that CCGroup addressed the issue of damages in both its summary judgment briefing and in its opposition to OptumInsight's Daubert motion. Id. at 3. According to OptumInsight, the parties' arguments regarding potential exclusion of Dr. Sullivan's opinions and the Court's reasoning in excluding those opinions put CCGroup on sufficient notice of its purported lack of evidence of market damages. Id. at 3-5.

         As for the merits of whether CCGroup can show market damages, OptumInsight contends that most of the evidence cited in CCGroup's motion-for example, OptumInsight's purported market dominance, the purported viability of CCGroup's product, and barriers to entry in the grouper market-goes only to the qualitative fact of antitrust injury, without providing any basis for the jury to award a non-speculative quantitative amount of damages. Id. at 1, 10-13. OptumInsight argues that its own performance sheds no light on how CCGroup would have performed but for OptumInsight's patents, and that CCGroup has not actually identified evidence showing the size of the grouper market as a whole. Id. at 10-11. OptumInsight distinguishes cases that CCGroup cites as recognizing a liberal standard for antitrust damages on the grounds that each of those cases presented a relatively straightforward comparison for the jury to calculate damages-before and after the anticompetitive conduct at issue affected the market, or in one case, performance in an noncompetitive geographic market versus a competitive geographic market-that is not found in this case. Id. at 5-6. OptumInsight asserts that a before-and-after comparison similar to those cases, demarcated here by CCGroup's successful defense against infringement claims in Cave I, would yield no damages, and that CCGroup may not base its damages on OptumInsight's performance in the grouper market rather than CCGroup's own performance. Id. at 7-8 & n.3.

         While OptumInsight does not dispute that its own expert Richard Bero offered opinions relating to damages, it argues that CCGroup is not entitled to call an opponent's expert in its case in chief, citing cases excluding such evidence as a matter of adversarial fairness. Id. at 13-14, 16- 17. OptumInsight also contends that Bero opined only on a maximum amount of damages, “an amount above which any damages claim would be obviously overstated” rather than an opinion as to the damages actually supported, and that he testified at his deposition that further work would be necessary to reach a reliable opinion on actual damages. Id. at 14-16.

         3. CCGroup's Reply Regarding Reconsideration

         CCGroup argues in its reply that the mere fact that arguments “touched on evidence relevant to the damages inquiry” did not allow the Court to grant judgment with respect to an issue on which OptumInsight did not move, and that CCGroup's previous arguments regarding antitrust injury and the admissibility of Dr. Sullivan's opinions did not, and had no reason to, constitute a full presentation of CCGroup's evidence on the issue of damages. Pl.'s Reply in Support of Mot. for Reconsideration (dkts. 396-2 (sealed), 396-3 (public)) at 1-3 (citing Hoard v. Hartman, 904 F.3d 780, 792-93 (9th Cir. 2018) (reversing summary judgment granted sua sponte as to an issue not raised in the defendant's motion)).

         With respect to the Court's more recent notice of intent to consider granting partial summary judgment sua sponte under Rule 56(f), CCGroup again argues that its evidence of antitrust injury-which the Court previously recognized as sufficient to proceed to trial on that issue-is also relevant to damages. Id. at 3-5 (“Evidence demonstrating that a party suffered some harm is plainly relevant to quantifying the amount of that harm.”). CCGroup also once again argues that the Court should not grant summary judgment on this issue because a jury could award nominal damages if it determines that CCGroup has not presented sufficient evidence of a particular amount of damages. Id. at 5. CCGroup further contends that a jury could determine its damages by “‘projecting the market share which the plaintiff would have attained absent the anticompetitive activity, and then projecting the [sic[4] plaintiff's profits accordingly, '” among other permissible methods, and suggests for the first time that the forthcoming supplemental report it seeks to present from Dr. Sullivan supports denying summary judgment as to damages. Id. at 6- 7, 10 (quoting Dolphin Tours, Inc. v. Pacifico Creative Serv., Inc., 773 F.2d 1506, 1511 (9th Cir. 1985)).

         CCGroup argues that Bero not only responded to Dr. Sullivan's opinions, but offered his own affirmative opinions as to CCGroup's lost profits if a jury were to determine that anticompetitive conduct was the cause of OptumInsight increasing its market share during the period at issue. Id. at 8. CCGroup concedes that Bero based his opinions on an assumption that CCGroup actually could have produced a competing product and that he characterized his damages figure as a maximum, but CCGroup contends that the Court has already recognized that there is evidence CCGroup could have competed in the standalone grouper market, and that a maximum damages figure is relevant to the jury's analysis. Id. According to CCGroup, the circumstances here are not analogous to cases cited by OptumInsight where courts have declined to allow a party to call an opponent's expert, such as a case where the defense expert's opinions were based on the plaintiff's expert's methodology, which the defense expert had made clear he did not believe was reliable. Id. at 9-10 (discussing, e.g., In re Taco Bell Wage & Hour Actions, No. 1:07-cv-01314-SAB, 2016 WL 815634, at *4-5 (E.D. Cal. Mar. 2, 2016)).

         CCGroup contends that there is sufficient evidence for the jury to estimate damages based on the revenue and profit that CCGroup would have obtained from lost sales, and that such an approach “is not a benchmark model” and does not require evidence showing the size of the market or participants' relative market shares. Id. at 12-13. Even if such data were required, CCGroup argues that the record contains more robust evidence of the nature of the standalone grouper market than of the physician efficiency market on which Dr. Sullivan's initial analysis relied. Id. at 13-14. CCGroup argues that under the circumstances of this case, where CCGroup claims that it was deterred from competing in the grouper market at all, it should not be required to identify specific sales to specific customers that it would have made but for OptumInsight's conduct. See Id. at 14-15.

         B. Reconsideration Is Warranted

         CCGroup requests reconsideration under the Court's inherent authority and Civil Local Rule 7-9(b)(3). Reconsideration Mot. at 1. That rule provides for reconsideration of an interlocutory order to remedy a “manifest failure by the Court to consider material facts or dispositive legal arguments which were presented to the Court before such interlocutory order.” Civ. L.R. 7-9(b)(3). The rule does not fit the circumstances of this motion-CCGroup's argument for reconsideration is not that the Court disregarded arguments presented by the parties, but rather that the Court acted sua sponte on an issue not raised by the parties. Nevertheless, although not squarely addressed by Local Rule 7-9, the Court concludes that reconsideration is warranted if the Court acted sua sponte without authority to do so and without notice to the parties that would have allowed for a timely objection before such action was taken.

         Rule 56(f) of the Federal Rules of Civil Procedure governs sua sponte action to grant summary judgment:

(f) Judgment Independent of the Motion. After giving notice and a reasonable time to respond, the court may:
(1) grant summary judgment for a nonmovant;
(2) grant the motion on grounds not raised by a party; or
(3) consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute.

Fed. R. Civ. P. 56(f). “Sua sponte grants of summary judgment are only appropriate if the losing party has ‘reasonable notice that the sufficiency of his or her claim will be in issue.'” Greene v. Solano Cty. Jail, 513 F.3d 982, 990 (9th Cir. 2008) (quoting Buckingham v. United States, 998 F.2d 735, 742 (9th Cir. 1993)).

         OptumInsight did not move-and does not argue now that it moved-for summary judgment on the issue of whether CCGroup could show a non-speculative amount of damages as a result of being dissuaded from competing in the market for grouper software. See Reconsideration Opp'n at 3-5 (failing to identify any part of OptumInsight's motion for summary judgment seeking a determination that CCGroup could not show damages). Although the Court expressed skepticism at the summary judgment hearing as to whether Dr. Sullivan's market damages opinions rested on a sufficient factual foundation, the Court neither raised the issue of whether CCGroup could show such damages without Dr. Sullivan's testimony nor invited a response from CCGroup on that issue. See generally Aug. 12, 2019 Hr'g Tr. (dkt. 371). The Court's order before the hearing identifying “a non-exhaustive list of topics that the parties should be prepared to address” also did not raise this issue. See dkt. 352.

         In the absence of such notice either from the Court or from OptumInsight's motion, CCGroup had no occasion to address the standard for a sufficient showing of damages in antitrust cases, or whether the evidence available could meet that standard if Dr. Sullivan's damages opinions were excluded. Granting summary judgment on that issue without prior notice to CCGroup was error, and would likely be reversible. See Hoard, 904 F.3d at 792-93; Greene, 513 F.3d at 990 (“[B]ecause Greene did not have notice and an opportunity to oppose summary judgment on those claims, summary judgment on them was inappropriate.”). The Court VACATES the portion of its August 28, 2019 holding that “CCGroup cannot recover damages based on projections of its performance but for OptumInsight's conduct in . . . the standalone grouper market.” MSJ Order at 102; see also Id. at 86-87.

         C. Sua Sponte Summary Judgment Under Rule 56(f)

         In granting CCGroup's motion for leave to files its motion for reconsideration, the Court also gave notice that if the motion for reconsideration were granted, the Court would consider under Rule 56(f) whether to grant summary judgment sua sponte that CCGroup lacks sufficient evidence to support an award of damages in the grouper market. See Oct. 4, 2019 Order. The Court allowed CCGroup to revise its proposed motion for reconsideration to include arguments and evidence opposing sua sponte judgment on that issue. Id. The Court now considers whether, in light of the parties' briefs and evidence filed after appropriate notice, the same outcome is warranted. See Fed. R. Civ. P. 56(f) (“After giving notice and a reasonable time to respond, the court may . . . consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute.”).

         1. Legal Standard for Summary Judgment

         A party opposing summary judgment must identify “‘specific facts showing there is a genuine issue for trial.'” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (citation omitted); see also Fed. R. Civ. P. 56(c)(1) (“A party asserting that a fact . . . is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record . . . .”). “[T]he inquiry involved in a ruling on a motion for summary judgment . . . implicates the substantive evidentiary standard of proof that would apply at the trial on the merits.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986). The party opposing summary judgment has the burden of identifying, with reasonable particularity, the evidence that precludes summary judgment. Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996).

         A party need not present evidence to support or oppose summary judgment in a form that would be admissible at trial, but the contents of the parties' evidence must be amenable to presentation in an admissible form. See Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th Cir. 2003). Neither conclusory, speculative testimony in affidavits nor arguments in moving papers are sufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). The court draws all reasonable factual inferences in favor of the party opposing summary judgment, Scott v. Harris, 550 U.S. 372, 378 (2007), but where a rational trier of fact could not find for that party based on the record as a whole, there is no “genuine issue for trial” and summary judgment is appropriate. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).

         2. Evidence of Damages

         Courts have long recognized a relatively lenient standard for proving damages in antitrust cases, under which a “jury is allowed to act on probable and inferential proof in determining the amount of damages even though such an award may be an approximation.” Dolphin Tours, Inc. v. Pacifico Creative Serv., Inc., 773 F.2d 1506, 1511 (9th Cir. 1985); see also, e.g., Knutson v. Daily Review, Inc., 548 F.2d 795, 811-12 (9th Cir. 1976) (“‘A study of the adjudicated cases in this area readily dispels any impression that this question of damages is governed by an application of the common law rule of reasonable certainty. The cases have long since departed from this rule in antitrust litigation.'” (quoting Flintkote Co. v. Lysfjord, 246 F.2d 368, 391 (9th Cir. 1957))). That is particularly true where a defendant's “wrongful conduct has rendered difficult the ascertainment of the precise damages suffered by the plaintiff.” Eastman Kodak Co. of N.Y. v. S. Photo ...

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