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SHRED-IT USA

December 27, 2002

SHRED-IT USA, INC. AND SHRED-IT CANADA, INC., PLAINTIFFS
V.
MOBILE DATA SHRED, INC., MICHAEL BOHBOT, NITZA I. CRUZ, AND EXECUTIVE MOBILE SHREDDING, DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge

DECISION AND ORDER

I. BACKGROUND

Plaintiffs Shred-it USA, Inc. and Shred-it Canada, Inc. ("Shred-It"), brought this action under the Court's diversity jurisdiction asserting claims for breach of contract, fraud, unfair competition, tortious interference with contracts, misappropriation of trade secrets, and deceptive trade practices. These claims arose from an asset purchase agreement (the "Asset Purchase Agreement") between Shred-It and defendants Mobile Data Shred, Inc. ("MDS") and its principal, Michel Bohbot ("Bohbot") entered into on November 20, 2001 and closed in mid-January 2002. Following a bench trial on these claims, the Court issued a Decision and Order dated October 30, 2002 setting forth its findings of fact and conclusions of law. See Shred-It USA, Inc. v. Mobile Data Shred, Inc., No. 02 Civ. 1967, 2002 WL 31453087 (S.D.N.Y. Oct. 30, 2002).

As remedies for the harms associated with the claims sustained, the Court granted injunctive relief against both sets of defendants. See id. at *9.-*10. With respect to Shred-It's demand of compensatory damages, the Court requested additional documentation and clarification of the amounts and types of monetary recovery Shred-It sought. See id. at *10.

Shred-It submitted responsive materials providing further support for its requested damages. With respect to the breach of contract and unfair competition claims, Shred-It seeks damages totaling $741,000 in profits it allegedly lost from seven former MDS customers whose business Shred-It asserts defendants colluded unfairly to divert to EMS. (Plaintiffs' Proposed Findings of Fact, Proposed Order, and Memorandum in Support on Remedies Issues, dated November 14, 2002). EMS and Cruz submitted a response asserting essentially that Shred-It had not provided sufficient evidence to prove either that EMS and Cruz had done anything to divert any former MDS customers from Shred-It or that Shred-It had lost the business revenues it claimed as damages from EMS and Cruz. (Proposed Findings of Fact For Defendant Nitza Cruz and Executive Mobile Shredding, dated December 4, 2002.)

MDS and Bohbot submitted materials which included an Affidavit from Gerald A. Shanker ("Shanker"), a certified public accountant proffered as an expert witness purportedly to rebut the trial evidence regarding the methodology and assumptions employed by Shred-It's witnesses in their calculation of proposed damages. (Defendants' Proposed Findings of Facts and Damages, dated December 6, 2002.)

In a reply to the submission of MDS and Bohbot, Shred-It objected to their tender of Shanker's affidavit as an unwarranted reopening of the evidentiary record. (Plaintiffs' Reply in Support of Clams for Damages, dated December 10, 2002.)

II. DISCUSSION

To substantiate its claim for damages due to lost profits, Shred-It introduced evidence at trial through James Thompson ("Thompson"), its vice president of finance and administration. Thompson testified that following Shred-It's purchase of MDS's assets, including its customers list and service agreements, seven former clients of MDS did not continue to employ the services of Shred-It as successor to MDS for their shredding requirements, but instead shifted their business to EMS, presumably induced to do so by the wrongful conduct of defendants.*fn1 Thompson arrived at Shred-It's estimate of damages by adding the revenues MDS actually derived from these seven former customers during the period of October, November and December of 2001, the last three months of services provided to them by MDS prior to the transfer of MDS's business to Shred-It in early January 2002. Annualizing the total revenues of $81,464.00 so received during those three months produces the figure of $271,595 in Shred-It's computation. Subtracting from this amount $35,000 corresponding to one customer (BNP Paribus) which Shred-It regained after four months, Shred-It calculates its total lost revenues from these customers at approximately $236,000 per year.

Shred-It then assumes, based on its customer retention rate of between 95 and 97 percent experienced in recent years, that it would have held each of these customers for at least five years. On this basis, Shred-It's estimate of lost revenues from the seven customers, including income not derived from BNP Paribus during the four months prior to regaining the account, totaled $1,215,000. To this sum, Shred-It applies a profit margin of 61 percent.*fn2 The product represents the $741,000 Shred-It seeks as damages attributable to its breach of contract claim against MDS and Bohbot and the unfair competition claim against EMS and Cruz.

As a preliminary matter, the Court reviews Shred-It's objection to the introduction of the Shanker affidavit by MDS and Bohbot. The Court agrees that it would be improper to admit and consider this evidence at this stage of the proceedings. The trial record closed when all sides rested at the conclusion of the evidentiary phase of the proceeding. Prior to or during trial, defendants had ample opportunity to seek leave to present a rebuttal witness to challenge Shred-It's evidence covering damages. They chose not to, and now offer no compelling reason why the trial record should be reopened. To introduce the testimony and report of a supposed expert witness at this point manifests an absence of due diligence. Acceptance of the evidence would contravene the letter and spirit of Federal Rule of Civil Procedure 26 and unduly prejudice Shred-It. See John v. Sotheby's Inc., 858 F. Supp. 1283, 1288 (S.D.N.Y. 1994) ("An application seeking to reopen the record is committed to the sound discretion of the district court." (citations omitted)).

Nor would it be justified to accept Shanker's report or reopen the record to allow him to refute Thompson's testimony on the ground that Thompson allegedly appeared as an expert witness. In fact, Thompson testified as a fact witness, a matter as to which defendants were on notice, since Thompson was identified in the Joint Pre-Trial Order as a fact witness with regard to Shred-It's alleged losses. A plaintiff is entitled to offer competent evidence from any relevant source from which damages may be ascertained with reasonable certainty; there is no obligation that a claimant support claims of damages only through expert witnesses. See Fitzgerald Publishing Co. v. Baylor Publishing Co., 807 F.2d 1110, 1118-19 (2d Cir. 1986); Compania Pelineon de Navegacion v. Texas Petroleum Co., 540 F.2d 53, 56 (2d Cir. 1976).


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