Doubletap Def. v. Hornady Mfg. Co.

DOUBLETAP DEFENSE, LLC, Plaintiff, v. HORNADY MANUFACTURING CO., Defendant.

No. 8:18CV492

United States District Court, D. Nebraska

August 17, 2021

MEMORANDUM & ORDER

Joseph F. Bataillon Senior United States District Judge

This matter is before the Court on Plaintiff Doubletap Defense LLC's (“DTD”) Motion to Exclude Expert Testimony (Filing No. 92) and Motion for Partial Summary Judgment (Filing No. 94). Also before the Court are Defendant Hornady Manufacturing Co.'s (“Hornady”) Motion to Exclude (Filing No. 93), Motion to Strike Plaintiff's Supplemental Report (Filing No. 95), Motion to Exclude Expert Testimony (Filing No. 96), and Motion for Summary Judgment (Filing No. 97). For the reasons stated below, DTD's Motions to Exclude and Hornady's Motion to Exclude and Motion for Summary Judgment are denied. DTD's Motion for Partial Summary Judgment is granted in part and Hornady's Motion to Strike is granted, as consistent with this Memorandum and Order.

FACTS

Hornady is a Nebraska corporation with its principal place of busines is in Grand Island, Nebraska. Filing Nos. 45 at 2, 46 at 1. DTD is a limited liability company organized under the laws of Georgia and its only member is a citizen of Missouri. Filing Nos. 45 at 2, 46 at 1.

DTD and the “Pocket Pistol”

DTD was formed in 2010 or 2011 by Marvin Dufner and Ray Kohout. Filing No. 98-1 at 3. DTD produced a small, lightweight two-barrel, concealable firearm that would fire single shots out of each barrel through successive “double tap” trigger pulls. The firearm was known as the “Pocket Pistol.” Filing Nos. 98-15 at 1, 8 and 98-1 at 6. Kohout patented his idea for the trigger mechanism and assigned the patent to DTD. Filing No. 98-15 at 1. As a result of an unrelated settlement agreement, another individual was added as a co-inventor to the utility patent. Filing No. 98-2 at 23. DTD partnered with Azimuth Technologies (“Azimuth”) to produce the Pocket Pistol. Filing No. 98-1 at 7-8. Azimuth manufactured approximately 23, 000 Pocket Pistols with an aluminum frame. Filing No. 98-1 at 11, 10. DTD purchased the Pocket Pistols from Azimuth at approximately $170 per unit. Filing No. 98-1 at 8.

DTD started shipping Pocket Pistols for retail sale in or about late May and early June of 2013. Filing No. 98-2 at 8. By mid-June of 2013, DTD received customer complaints of “double strikes.” Filing No. 98-2 at 8. Double strikes occur when both of the pistol's barrels fire simultaneously. Filing No. 98-1 at 10.

In April 2014, after slowing sales on the initial run of 25, 000 guns, DTD looked to replace the first-generation Pocket Pistol with a second-generation firearm (the “Gen 2” firearm). Filing Nos. 98-2 at 20 and 98-1 at 14. In preparation for the “Gen 2” firearm, DTD and Azimuth entered into an agreement with Bill Hicks & Co. (“Bill Hicks”) to sell 6, 000 first-generation Pocket Pistols as a closeout sale. Filing No. 98-2 at 21. Bill Hicks paid $200 per pistol, with Azimuth receiving $50 a pistol plus $5 in consideration of excise tax. Filing No 98-2 at 21. These closeout price points were significantly lower than the price DTD had previously charged to wholesalers. Filing No. 98-2 at 21. Azimuth's remaining inventory of first-generation firearms were sold to Chattanooga Shooter Supply, Inc. Filing No. 98-1 at 14. DTD asserts that it had approximately 7, 000 orders for a titanium version of the Pocket Pistol. Filing No. 98-2 at 25. The titanium version was never produced. Filing No. 98-2 at 25.

DTD's sales revenue, gross profit and net income from the launch of the Pocket Pistol until April 2014 were as follows:^[1]

Month

Sales Revenue

Gross Profit

Net Income

May 2013

$130, 317

$54, 311

$(23, 950)

June 2013

$736, 004

$322, 355

$245, 718

July 2013

$1, 493, 327

$689, 957

$605, 444

August 2013

$1, 481, 248

$482, 862

$473, 350

September 2013

$1, 118, 994

$40, 173

$336, 580

October 2013

$81, 771

$40, 173

$(85, 482)

November 2013

$90, 662

$22, 605

$(139, 130)

December 2013

$119, 307

$49, 394

$(17, 431)

January 2014

$26, 849

$1, 850

$(174, 999)

February 2014

$20, 370

$(14, 701)

$(93, 541)

March 2014

$60, 767

$16, 385

$(41, 890)

April 2014

$6, 880

$8, 860

$(72, 578)

DTD wanted the Gen 2 pistol to come in different materials polymer, aluminum, and titanium. Filing Nos. 98-1 at 12-13 and 98-2 at 6. DTD had conversations with Nordon Plastics about producing a polymer frame for approximately $10 per frame. Filing Nos. 98-1 at 15 and 98-2 at 11, 22. No manufacturing agreement was signed between Nordon Plastics and DTD. Filing No. 98-1 at 15. DTD was also working with Bob Domain, an engineer at Fabrique National Manufacturing, Inc., to resize and reconfigure the trigger mechanism to fit with the polymer frame. Filing No. 98-2 at 11-12. Domain also did engineering work for the California safety device on the Gen 2 pistol, which was required in order to sell the firearm in California. Filing No. 98-2 at 12. Despite these efforts, DTD did not have a working prototype, a written cost estimate, or a written business plan for the Gen 2 firearm. Filing Nos. 98-1 at 15-17 and 98-2 at 6, 12, 16, 18-19, 22-23, 24.

DTD and Hornady's Trademark Agreement

In March 2013, DTD and Hornady entered into a Trademark Assignment and License Agreement (“the Agreement”). Filing No. 45-1. The Agreement resulted from the settlement of a trademark infringement lawsuit. Filing No. 45-1 at 2-3. In the Agreement, DTD assigned all of its rights, title, and interest in and to its “DOUBLETAP Marks” (“the Marks”) to Hornady, and for a royalty fee and other consideration, Hornady licensed the Marks back to DTD. Filing No. 45-1 at 3-5. The Agreement contained a choice of law provision, stating that the Agreement was governed by and construed according to the law of Nebraska. Filing No. 45-1 at 8.

The Agreement also contained an indemnification clause which stated:

SECTION 7. INDEMNIFICATION. EACH PARTY SHALL INDEMNIFY, DEFEND, PROTECT, AND HOLD HARMLESS THE OTHER PARTY AND ITS OFFICERS, DIRECTORS, OWNERS, MEMBERS AND EMPLOYEES FROM AND AGAINST ALL CLAIMS, DEMANDS, LAWSUITS, DAMAGES, LIABILITIES, JUDGMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING FROM OR RELATING TO A PARTY'S BREACH OF THIS AGREEMENT; OPERATION OF ITS BUSINESS, ITS DESIGN, MANUFACTURE, SALE OR DISTRIBUTION OF ANY PRODUCT AND/OR SERVICES, THE ACT OF ANY EMPLOYEE, AGENT, OR PRINCIPAL CONNECTED WITH ITS BUSINESS, ITS OBLIGATIONS UNDER THIS AGREEMENT; ANY LIABILITY RESULTING FROM THE USE OR MISUSE OF ANY PRODUCT AND/OR SERVICES BY ANY END USER OF SUCH PRODUCT AND/OR SERVICES; OR, WITH RESPECT TO LICENSEE, LIABILITY RELATED TO TRADEMARK INFRINGEMENT CLAIMS FOR ITS USE OF THE MARKS AS CONTEMPLATED BY THIS AGREEMENT. THE INDEMNIFIED PARTY SHALL RETAIN THE RIGHT TO SELECT ITS COUNSEL IN THE EVENT THE INDEMNIFIED PARTY IS THREATENED WITH OR JOINED IN ANY ACTION ARISING FROM THE INDEMNIFYING PARTY'S ACTIONS OR INACTION.

Filing No. 45-1 at 5-6.

DTD received a cease-and-desist letter dated June 9, 2014, from Double Tap Ammunition (“DTA”) demanding DTD cease using the DoubleTap mark-the mark Hornady licensed to DTD. Filing No. 45. DTD tendered the cease-and-desist letter to Hornady and demanded that Hornady honor the indemnification provision in the Agreement. Filing No. 45. Hornady refused to indemnify DTD. DTD alleges it was forced to cease conducting business after Hornady declined to indemnify it from a trademark infringement claim involving the DTD mark.

Background on Expert Testimony of Damages

DTD filed the initial complaint, alleging breach of the Agreement, Filing No. 1, on June 7, 2018, in the United States District Court for the Northern District of Georgia. On October 17, 2018, the case was transferred to the United States District Court for the District of Nebraska. Filing No. 20. This Court granted a Motion for Leave to Amend Complaint on February 11, 2019. Filing No. 44. DTD filed the Amended Complaint alleging breach of contract on February 15 2019. Filing No. 45.

DTD alleges that its damages for Hornady's breach are equal to the fair value of a 100% equity interest in DTD's business. See Filing No. 98-10 at 19. DTD's initial report (the “Initial Report”) by Howard Zandman, CPA, opined that DTD's value as of June 9, 2014-the date on the cease-and-desist letter-was $4, 072, 000. Filing No. 98-10 at 5, 19. The valuation was based on DTD's 2013 monthly financials. Filing No. 98-5, 90:24-25. In creating the Initial Report, Zandman stated, “We [Aprio] have conducted interviews with the current management of the Company and/or their representatives concerning the past, present, and prospective operating results of the Company.” Filing No. 98-10 at 48. Zandman's partner at Aprio, Carrie Zhou, helped write the Initial Report.

Hornady's expert, William Kenedy, noted discrepancies in DTD's Initial Report in his rebuttal report (the “Kenedy Report”). Filing No. 98-11. Kenedy attacked Zandman's assumption that DTD would continue to sell the original version of the Pocket Pistol into the future. Zandman's Initial Report assumed that DTD was “finalizing” an agreement with Azimuth Technologies to manufacture the Pocket Pistol as of the June 9, 2014, valuation date. However, Kenedy noted that discovery documents showed DTD and Azimuth terminated their contractual obligations approximately one month prior to the valuation date. Additionally, the Kenedy Report noted that prior to the valuation date, DTD's management liquidated all its Pocket Pistol inventory at an approximately fifty percent mark down in May 2014 and that DTD had no intention of engaging in further sales of the original Pocket Pistol. In sum, Kenedy pointed out that Zandman and Zhou had originally placed that value of DTD at...