Jack Henry & Associates, Inc. v. BSC, Inc.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0678n.06
Nos. 10-6258/10-6507
UNITED STATES COURT OF APPEALS FILED
FOR THE SIXTH CIRCUIT Jun 25, 2012
LEONARD GREEN, Clerk
JACK HENRY & ASSOCIATES, INC., )
)
Plaintiff-Appellee Cross-Appellant, ) ON REVIEW FROM THE UNITED
) STATES DISTRICT COURT FOR
v. ) THE EASTERN DISTRICT OF
) KENTUCKY
BSC, INC., )
)
Defendant-Appellant Cross-Appellee. )
Before: KEITH, MARTIN, and BOGGS, Circuit Judges.
PER CURIAM. Appellant BSC, Inc. (“BSC”) appeals the district court’s denial of its
motion for judgment as a matter of law and its motion for a new trial. As a cross-appellee, it argues
that the district court erroneously awarded and improperly calculated prejudgment interest. Appellee
and cross-appellant Jack Henry & Associates, Inc. (“Jack Henry”), for its part, asserts that the district
court erred in its award of postjudgment interest. For the reasons that follow, we affirm each of the
district court’s rulings.
BACKGROUND
This is a breach of contract case. Jack Henry, a software developer and bank service-
provider, filed a complaint alleging breach of contract against BSC. Under the Electronic Funds
Transfer Agreement (“EFTA” or “contract”) into which the parties entered, Jack Henry promised
to process ATM and debit transactions for customers of several banks serviced by BSC, formerly
Nos. 10-6258/10-6507, Jack Henry & Associates, Inc. v. BSC, Inc.
known as First Corbin Data. BSC terminated the contract prematurely and refused to pay an early-
termination fee. Jack Henry sued to recover that fee.
BSC counterclaimed, alleging that Jack Henry’s products and services were defective and
fell below industry standards. As a defense to Jack Henry’s claims, BSC asserted that it was not the
real party in interest because it did not sign the EFTA. The EFTA identifies BSC by its former
name, First Corbin Data; BSC’s president signed a modification to the EFTA; and First Corbin
Bancservices (not First Corbin Data) executed the EFTA.
At trial, Jack Henry presented testimony regarding the ATM and debit transaction processing
industry. This included one of Jack Henry’s experts, Suzanne Savage (“Savage”), who offered
testimony, in relevant part, about industry standards. It also included testimony about the
relationship between Jack Henry, BSC, and First Corbin Bancservices.
At the close of Jack Henry’s case, BSC moved for judgment as a matter of law on two
grounds relevant to this appeal. First, it argued that Jack Henry could not recover under the EFTA
because it did not prove performance in accordance with industry standards. Second, it argued that
Jack Henry had not proved its case against BSC because BSC did not sign the EFTA. The district
court reserved ruling on both arguments.
BSC then rested its case without introducing evidence. As a result, Jack Henry moved for
judgment as a matter of law on all of BSC’s counterclaims, including its claim that Jack Henry’s
services and products were defective. The district court dismissed BSC’s counterclaims.
As jury instructions were discussed, BSC repeatedly asserted its position that it was not a
party to the EFTA and requested an instruction addressing the factual question of which entities were
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parties to the contract. Ultimately, the jury was presented with the following questions, which we
paraphrase for clarity’s sake:
• Do you find by a preponderance of the evidence that Jack Henry fulfilled its
obligations under the EFTA?
• Which defendants do you find by a preponderance of the evidence were
parties to the EFTA?
• Do you find by a preponderance of the evidence that either defendant
breached the EFTA and that the breach caused injury to Jack Henry?
The jury decided in Jack Henry’s favor, finding that Jack Henry performed its obligations
under the EFTA, that both First Corbin Bancservices and BSC were parties to the EFTA, and that
BSC breached the EFTA. BSC then renewed its motion for judgment as a matter of law. It also
moved for a new trial, claiming that the district court had erroneously excluded the testimony of one
of its experts, Dr. Andrew Cobb (“Cobb”). The district court denied BSC’s motions. This appeal
followed.
DISCUSSION
I. BSC’s motion for judgment as a matter of law
BSC asserts that it is entitled to judgment as a matter of law on two grounds. The first
ground concerns whether BSC is a party to the EFTA, and includes three arguments: (i) BSC never
waived its statute-of-frauds defense; (ii) the record evidence does not satisfy the statute of frauds;
and (iii) the EFTA bars Jack Henry’s recovery. The second ground concerns whether Jack Henry
was entitled to a favorable verdict where, BSC argues, it produced insufficient evidence of industry
standards. We address BSC’s arguments in turn.
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We review a district court’s denial of a motion for judgment as a matter of law de novo.
Noble v. Brinkler Int’l, Inc., 391 F.3d 715, 720 (6th Cir. 2004). Where, as here, a court’s jurisdiction
is founded on diversity of citizenship, we apply “the standard of review used by the courts of the
state whose substantive law governs the action.” Morales v. Am. Honda Motor Co. Inc., 151 F.3d
500, 506 (6th Cir. 1998). In this case, Missouri law governs the standard of review. Under Missouri
law, judgment as a matter of law is appropriate when the plaintiff has not made “a submissible case,”
i.e., has not presented “substantial evidence for every fact essential to liability.” Erdman v.
Condaire, Inc., 97 S.W.3d 85, 88 (Mo. Ct. App. 2002); see Giddens v. Kansas City S. Ry. Co., 29
S.W.3d 813, 818 (Mo. 2000) (en banc). In assessing the evidence, we make all reasonable inferences
in the light most favorable to the plaintiff, and should not overturn a jury verdict “unless there is a
complete absence of probative facts to support it.” Id.
A. Determining the parties to the Agreement
1. Waiver of the statute of frauds
Missouri’s statute of frauds provides, in relevant part, that “an agreement that is not to be
performed within one year from the making thereof” is not enforceable “unless the agreement upon
which the action shall be brought, or some memorandum or note thereof, shall be in writing and
signed by the party to be charged.” Mo. Rev. Stat. § 432.010 (emphasis added). Although the
statute of frauds is a state-law defense, whether it was waived is a question of federal law. See
Montgomery v. Wyeth, 580 F.3d 455, 468 n.7 (6th Cir. 2009) (stating that, in diversity actions, state
law defines “the nature of defenses” while federal law governs “procedural rules”); see also Morgan
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Guar. Trust Co. v. Blum, 649 F.2d 342, 344 (5th Cir. 1981). Thus, federal law and the Federal Rules
of Civil Procedure determine whether BSC has waived its statute-of-frauds defense.
Federal Rule of Civil Procedure (50)(a)(2) requires that a motion for judgment as a matter
of law “specify the judgment sought and the law and facts that entitle the movant to the judgment.”
Fed. R. Civ. P. 50(a)(2). A post-verdict motion for judgment as a matter of law “may not advance
additional grounds that were not raised in the pre-verdict motion.” Kusens v. Pascal Co. Inc., 448
F.3d 349, 361 (6th Cir. 2006). And judgment as a matter of law “is not available at anyone’s request
on an issue not brought before the court prior to submission of the case to the jury.” Am. & Foreign
Ins. Co. v. Bolt, 106 F.3d 155, 160 (6th Cir. 1997).
BSC argues that it preserved its statute-of-frauds defense by using language from the statute
in its pre-verdict motion for judgment as a matter of law. This, it argues, put Jack Henry and the
court “on notice” of its statute-of-frauds defense. Specifically, BSC stated that the EFTA was
“signed by the party to be charged,” i.e., not by BSC. It also argues that its pre-verdict motion
should be construed liberally in light of the rule’s purposes. We disagree.
BSC never actually raised the statute of frauds in its pre-verdict motion or otherwise at trial,
and thereby waived that defense. Indeed, by the trial’s conclusion, the statute was specifically
mentioned only twice: once in BSC’s Answer and Counterclaims, and once by the court. The latter
occurred after BSC rested, during discussions regarding BSC’s motion for a directed verdict on the
basis that it was not a party to the EFTA. During a colloquy between the district court and Jack
Henry’s counsel, the court asked whether the EFTA was subject to the statute, and counsel for Jack
Henry acknowledged that it was. Notably, BSC did not attribute what it now characterizes as a
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quotation of the statute to the statute. There is a difference between merely using words from a law
and actually making arguments that reference and rely on that law and case law. Further, there are
two statutes of frauds in Missouri—one for sales under the Uniform Commercial Code (“UCC”),
Mo. Rev. Stat. § 400.2-201, and one for all other transactions, id. § 432.010. The statute of frauds
governing UCC sales contains three exceptions that the general statute lacks, including for specially-
manufactured goods, partial payment and performance, and acknowledgment of a contract in
pleadings or testimony in court. § 400.2-201(3). Because it failed to mention or cite the statute of
frauds in general, much less which of the two Missouri statutes it purportedly relied upon, we think
it is clear that BSC’s failed to “specify . . . the law and facts” entitling it to judgment. Fed. R. Civ.
P. 50(a)(2).
Whether BSC’s pre-verdict motion should nevertheless be liberally construed as having put
the court and opposing counsel “on notice” of its would-be statute-of-frauds defense is a closer call.
“Although Rule 50(a) requires a motion for judgment as a matter of law to state its ‘specific
grounds,’ the rule does not define how specific the grounds must be.” Kusens, 448 F.3d at 361
(citing Anderson v. United Tel. Co. of Kansas, 933 F.2d 1500, 1504 (10th Cir. 1991)). “Because the
requirement that a Rule 50(a) motion precede a Rule 50(b) motion is ‘harsh in any circumstance,’”
a Rule 50(a) motion should be reviewed in light of the rule’s purpose: to secure a just, speedy, and
inexpensive determination of the case, and to provide notice to the court and opposing counsel of
any deficiencies in the opposing party’s case before sending it to the jury. See Kusens, 448 F.3d at
361. “Accordingly, where Rule 50(a)’s purpose . . . has been met, courts usually take a liberal view
of what constitutes a pre-verdict motion sufficient to support a post-verdict motion.” Id. Phrased
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differently, where there is notice, a somewhat vague pre-verdict motion may nevertheless preserve
an argument for a post-verdict motion. See id.
Kusens—a case on which BSC relies—is illustrative but, ultimately, does not help BSC. In
Kusens, we found a judgment not withstanding the verdict properly granted where Defendant’s pre-
verdict motion “was a general argument made orally that [the] plaintiff failed to argue his public
policy claim, at all.” Id. at 362. Counsel for the defense stated, “The public policy claim was not
argued, not mentioned in the opening statement. Therefore, at that point in time, I was actually
entitled to make a directed verdict [motion] . . . and . . . I am doing that at this point now, because
there’s been no reference to it in this case.” Id. at 362-63 (alterations in original). The district court
“expressly acknowledged” that Defendant was correct and there had been “no argument regarding
the public policy claim.” Id. at 354 (alteration omitted). Defendant’s post-verdict motion, “which
was made in writing and was fully briefed, presented the failure to establish a public policy claim
with specificity.” Id. at 362. Upon considering these facts, we found that “[d]efense counsel’s
argument and the court’s on-the-record statements and ruling were sufficient to alert Plaintiff to the
evidentiary insufficiency alleged by Defendant—his failure to plead and prove his cause of action.”
Id. at 363. It was “a close question,” but we nevertheless found “no error” in the district court’s
conclusion that Defendant’s pre-verdict motion sufficiently preserved the issue raised in its post-
verdict motion. Id.1 Yet Kusens does not help BSC: even if BSC need not use technical specificity
1
The Kusens Court relied on the Eighth Circuit case Rockport Pharmacy, Inc. v. Digital
Simplistics, Inc., 53 F.3d 195 (8th Cir. 1995). In Rockport Pharmacy, the defendant presented “only
a generalized no-duty-of-care argument” in its pre-verdict motion and, in its post-verdict motion,
made the same argument with “specificity.” Kusens, 448 F.3d at 362. The Eighth Circuit found that
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in its pre-verdict arguments, Kusens shows that it must at least make an argument, even a general
one. Like Kusens, this case arguably is a close call; but the closest BSC’s pre-verdict motion came
to making even a general argument was using a bit of language that appears in two similar statutes,
i.e., that the EFTA was “signed by the party to be charged,” not by BSC. This did not put the court
and Jack Henry on notice regarding a defense tied to one of the state’s two statutes of frauds, and
without notice, “technical noncompliance” need not be excused. Kusens, 448 F.3d at 361.
BSC also directs this court to an Eastern District of New York case in support of its “notice”
argument, Hamptons Locations, Inc. v. Rubens, 640 F. Supp. 2d 208, 212-13 (E.D.N.Y. 2009), but
that case is distinguishable and non-controlling. In Hamptons Locations, the district court found that
the defendant had, in fact, put the parties on notice for the purposes of a Rule 50(b) motion where
it “explained its position in detail following the presentation of Plaintiff’s case-in-chief,” “articulated
several perceived inadequacies in Plaintiffs’ proof,” and “laid out his legal arguments.” Id. at 213.
Here, however, BSC rested after Jack Henry’s case-in-chief and did not mention or cite either statute
of frauds in its pre-verdict motion. We are thus unprepared to say that BSC described its statute of
frauds defense in detail, articulated its case, and laid out its legal arguments.
the general question of duty of care (raised in the pre-verdict motion) was “inextricably intertwined”
with the specific question regarding the duty of care (raised in the post-verdict motion.) Id. at 362.
As such, the later argument encompassed the earlier argument. See id. Just as in Kusens, however,
the defendant in Rockport Pharmacy did, in fact, make an argument, including references to
controlling law, in its pre-verdict motion, to wit: that under controlling law, there must be a duty of
care owed to the plaintiff and that a mere breach of contract did not establish that duty. See Rockport
Pharmacy, 53 F.3d at 197.
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In light of the foregoing, we conclude that just as BSC’s failure to cite the statute of frauds
and argue it affirmatively resulted in a waiver of that defense, it also resulted in a lack of notice to
the district court and Jack Henry.
2. Satisfying the statute of frauds and the EFTA as written
In addition to arguing that it preserved its statute-of-frauds defense, BSC argues that the
record evidence does not satisfy the statute anyway. BSC argues that it did not sign the EFTA, and
that this alone is dispositive because the statute requires contracts to be signed by the party to be
charged. BSC further asserts that documents outside the EFTA cannot be used to satisfy the statute
because, since BSC struck its name and changed the signatory to First Corbin Data before Jack
Henry signed the contract, the contract “clearly” shows that BSC was not a party. Its arguments are
meritless and we reject them.
“To satisfy the statute of frauds, it is not essential that a writing be a single document.” In
re Estate of Looney, 975 S.W.2d 508, 515 (Mo. Ct. App. 1998). “Instead, the agreement may be
contained in separate writings when the separate writings, taken together, meet the requirements of
the statute.” Id. (internal quotation and citation omitted). The separate writings “need only be
connected either by express reference to one another or by clear implication established through their
respective contents.” Id.
In this case, there are at least three documents that, taken together and in context, satisfy the
statute: (i) the EFTA; (ii) the termination letter; and (iii) the Deconversion Agreement, in which Jack
Henry agreed to assist BSC in switching its processing to software owned by another vendor. The
EFTA itself memorializes the terms of the agreement. Although BSC did not sign the EFTA, BSC
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did sign two other documents that specifically acknowledge that BSC was a party to the EFTA. The
first sentence in the Deconversion Agreement recites: “Whereas, Jack Henry & Associates, Inc.
(JHA) and BSC INC. formerly FIRST CORBIN DATA, 2400 S. MAIN ST, CORBIN KY 40701
(Client) entered into an Electronic Funds Transfer Processing Services Agreement . . . .” The
termination letter begins with a similar acknowledgment, and is written on BSC stationary. Mark
Terry, President of BSC, signed both the Deconversion Agreement and the termination letter. These
documents show that the parties understood the contractual relationship with Jack Henry to extend,
in relevant part, to BSC.
We also conclude that, because the EFTA was ambiguous, the court properly admitted
extrinsic evidence, and a reasonable jury could conclude from that evidence that BSC was a party
to the agreement. Under Missouri law, a contract is ambiguous “if its terms are susceptible to more
than one meaning so that reasonable persons may fairly and honestly differ in the their construction
of the terms.” PlaNet Prods. v. Shank, 119 F.3d 729, 731-32 (8th Cir. 1997). “In construing
ambiguous contracts the objective is to ascertain and render effective the mutual intent of the
parties.” Busch & Latta Painting Corp. v. State Highway Com., 597 S.W.2d 189, 197-98 (Mo. Ct.
App. 1980) (quotation and citation omitted). To that end, we consider “the entire contract,
subsidiary agreements, the relationship of the parties, the subject matter of the contract, the facts and
circumstances surrounding the execution of the contract, the practical construction the parties
themselves have placed on the contract by their acts and deeds, and other external circumstances
which cast light” on the parties’ intent. Id. at 198 (quotation marks and citation omitted).
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There was no error in considering extrinsic evidence because the EFTA is ambiguous
regarding whom it binds. The EFTA identifies BSC by its former name, First Corbin Data; BSC’s
president signed a modification to the EFTA; and First Corbin Bancservices (not First Corbin Data,
the name under which BSC formerly did business) executed the EFTA. Because “the contract [was]
ambiguous, and extrinsic evidence [was] proper, . . . construction of the agreement [was] for the jury
under proper instructions from the court.” Id. (internal quotation marks omitted). Making all
reasonable evidentiary inferences in Jack Henry’s favor—as we must—we conclude that a jury could
find BSC was a party to the contract. We therefore cannot say that there is “a complete absence of
probative facts to support” the jury’s conclusion. Erdman, 97 S.W.3d at 88.
B. Industry Standards
BSC next argues that Jack Henry failed to establish that it provided processing services under
the EFTA that were consistent with industry standards.2 To prevail on its breach of contract claim
against BSC, Jack Henry indeed must prove that it “performed in accordance with the terms of the
contract,” S. G. Adams Printing & Stationary Co. v. Cen. Hardware Co., 572 S.W.2d 625, 629 (Mo.
Ct. App. 1978), i.e., in conformity with industry standards. As BSC’s argument goes, Jack Henry
failed to introduce sufficient evidence to establish the applicable industry standards, and there was
thus no way for the jury to determine that Jack Henry’s performance was consistent with those
standards. We find BSC’s argument unpersuasive.
2
As a preliminary matter, what an industry standard is, and whether a party performed in
conformity with that standard, are questions of fact for the jury. See Kveragas v. Scottish Inns, Inc.,
733 F.2d 409, 414 (6th Cir. 1984) (“The factfinder may also consider . . . compliance with the
industry standard, if such a standard exists and is found to be reasonable.”)
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As an initial matter, BSC erroneously places the burden of proof on Jack Henry. In the
“Warranties” section of the EFTA, Jack Henry promised “to provide the Processing Services . . . in
a competent manner consistent with industry standards.”3 Under Missouri law, breach of warranty
is either a counterclaim or an affirmative defense that the defendant—BSC—must plead and prove.
See Kallenbach v. Varner, 502 S.W.2d 446, 448 (Mo. Ct. App. 1973). It is unclear whether BSC
deemed Jack Henry’s alleged failure to perform in compliance with industry standards a defense or
a counterclaim: In its Answer and Counterclaims, BSC asserts as a defense that Jack Henry breached
the contract, and as a counterclaim that Jack Henry “made express and implied warranties in the
agreements that the products and services would be fit for the use intended.” In any event, BSC
ultimately chose to abandon its counterclaims, resting after Jack Henry presented its case. The
district court subsequently dismissed BSC’s counterlcaims, and so BSC has effectively waived its
opportunity to treat the alleged breach as a counterclaim. Even assuming, however, that BSC’s
breach argument was a defense, its argument is unavailing because, as stated above, under Missouri
law, BSC bears the burden of showing that Jack Henry breached the warranty. Though Jack Henry
was required to show “performance” to recover, it was incumbent upon BSC to prove the industry
standard (from which breach of warranty could be determined). As such, we reject its assertion that
it should be granted judgment as a matter of law because Jack Henry did not prove the industry
standard.
3
The parties’ intent “is presumed to be expressed by the natural and ordinary meaning of the
language in the contract.” Parker v. Pulitzer Publ’g Co., 882 S.W.2d 245, 249 (Mo. Ct. App. 1994).
Thus, there is no reason to conclude that the foregoing provision was not a warranty.
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But even if Jack Henry had borne that burden, it introduced sufficient evidence from which
a jury could discern the industry standard and also determine that Jack Henry performed consistent
with that standard. BSC’s primary argument on this issue is that Jack Henry did not meet its burden
(which, as discussed above, was actually BSC’s burden for all intents and purposes) because Savage,
Jack Henry’s expert, relied on data she obtained from Jack Henry, measured Jack Henry’s
performance against a similar company’s operating rules, and conceded on cross-examination that
there are no “unanimous standards,” such as those created by trade groups. But determining what
the industry standard is and whether it has been violated are questions for the jury. See Kveragas,
733 F.2d at 414. A jury could deduce an industry standard from testimony based on the practices
of individual companies within the industry.4 That Savage conceded that her opinion was not based
on a formalized, industry-wide standard goes only to the weight of her evidence. Based on its verdict
in this case, the jury clearly found it sufficient.
What is more, the jury could have concluded that, even if Jack Henry did breach the contract
by failing to meet industry standards, the breach was not material. See Guidry v. Charter Commc’ns,
4
BSC cites multiple cases for the proposition that industry standards must be adopted by the
industry as a whole or else are invalid. None of the cases is jurisdictionally controlling, and none
is analogous enough to be useful. Indeed, the majority of them are Daubert cases in which the court
excluded expert testimony as unreliable because, among other reasons, the expert did not base his
or her opinion on identifiable industry standards. See Daubert v. Merrel Dow Pharm., Inc., 509
U.S. 579 (1993). But whether an expert’s testimony is reliable under Daubert is a different question
from whether a jury could reasonably deduce an industry standard from the evidence before it. The
cases are even less persuasive when viewed through the lens of appellate review, where this court
should only overturn the jury’s decision if, drawing all “reasonable inferences” from the evidence
in the light most favorable to Jack Henry, there is a “complete absence of probative facts” to support
that decision. Erdman, 97 S.W.3d at 88.
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Inc., 269 S.W.3d 520, 531 (Mo. Ct. App. 2008) (“Whether a breach is material . . . is a question of
fact” for the jury.). Under Missouri law, only a material breach would preclude Jack Henry from
recovering against BSC. See id. Thus, even if the jury found a breach, it would not necessarily
prevent Jack Henry from prevailing. This is yet another reason why we decline to disturb the jury’s
verdict.
For the foregoing reasons, viewing the “evidence and all reasonable inferences therefrom in
the light most favorable to the plaintiff,” it is difficult if not impossible to say that “there is a
complete absence of probative facts to support” the jury’s conclusion that Jack Henry’s performance
was consistent with industry standards. Erdman, 97 S.W.3d at 88.
II. BSC’s motion for a new trial
After the jury verdict, BSC filed a motion for judgment as a matter of law or, in the
alternative, for a new trial. BSC’s theory regarding a new trial is that the district court improperly
excluded its expert witness, Cobb. Specifically, it argues that Cobb’s testimony was reliable based
on his experience and education, his reliance on “best practices,” and his consideration of alternate
explanations for the various problems in Jack Henry’s systems. We disagree.
We review a trial court’s refusal to grant a motion for a new trial for an abuse of discretion.
See Mike’s Train House, Inc. v. Lionel, LLC, 472 F.3d 398, 405 (6th Cir. 2006). “Even if a mistake
has been made, a new trial will not be granted unless the evidence would have caused a different
outcome at trial.” Nida v. Plant Prot. Ass’n Nat’l, 7 F.3d 522, 527 (6th Cir.1993).
The district court denied BSC’s motion for a new trial, stating that it had “explained its
reasons for excluding [Cobb’s] testimony” in a previous order, and it “decline[d] to rehash this
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already heavily-litigated issue.” The previous order was issued after a hearing on Jack Henry’s
motion to suppress Cobb’s testimony, at which the district court questioned Cobb extensively.
Ultimately, the district court found that the Daubert factors weighed in favor of excluding Cobb’s
testimony. See Daubert, 509 U.S. 579.
When performing a Daubert analysis, a district court must “determine whether the evidence
‘both rests on a reliable foundation and is relevant to the task at hand.’” Ky. Speedway, LLC v. Nat’l
Ass’n of Stock Car Auto Racing, Inc., 588 F.3d 908, 915 (6th Cir. 2009) (quoting Daubert, 509 U.S.
at 597). Several factors bear on the reliability of expert testimony:
(1) whether a theory or technique can be or has been tested; (2) whether it has been
subjected to peer review and publication; (3) whether a technique has a known or
potential rate of error and the existence of standards controlling its operation; and (4)
whether the theory or technique enjoys general acceptance in a relevant scientific
community.
Mike’s Train House, 472 F.3d at 407. These factors are “neither definitive, nor exhaustive, and may
or may not be pertinent to the assessment in any particular case.” Nelson v. Tenn. Gas Pipeline Co.,
243 F.3d 244, 251 (6th Cir. 2001) (citing Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999)).
The inquiry is “flexible” and focuses “solely on principles and methodology, not on the conclusion
that they generate.” Daubert, 509 U.S. at 594-95. The proponent of the testimony bears the burden
of proving admissibility, Nelson, 243 F.3d at 251 (citing Daubert, 509 U.S. at 592 n.10), and on
appeal, we have instructed that the proffered evidence must also be outcome-determinative. See
Nida, 7 F.3d at 527.
In granting Jack Henry’s motion to exclude, the district court focused on four aspects of
Cobb’s reports prepared for the trail: (i) his definition of “defect”; (ii) his “criticality” scale; (iii)
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whether Cobb considered alternative explanations for the problems about which he was opining; and
(iv) his analysis and conclusions. Regarding Cobb’s definition of “defect,” the district court
observed that Cobb’s report did not define the term, and he provided no authoritative support for the
definition he proffered at the hearing. Indeed, he defined a defect merely as a problem that Jack
Henry corrected. Thus, his definition did not “distinguish between actual defects and actions taken
by [Jack Henry] in response to customer complaints based on something other than a software
defect.” At the hearing, Cobb conceded that his definition had not been peer-reviewed. He also
admitted that he did not use the sources he relied upon in his rebuttal report, including a leading book
in the software field, in formulating his definition of “defect.” Because it had not been subject to
peer review, tested, or widely accepted in the scientific community, the district court determined that
Cobb’s definition of “defect” was unreliable under the Daubert inquiry.
Cobb’s “criticality” scale, which he used to evaluate the seriousness of the alleged defects,
also failed Daubert. First, Cobb admitted that it was not subject to peer review. Second, Cobb
defined the scale as an “amalgamation of best practices from academia to different organizations,”
but BSC did not show that the combined methodologies themselves satisfied Daubert. When an
“expert offers an opinion that is based on a combination of two methodologies, each methodology
must meet the Daubert criteria, and the combined methodology must meet those criteria also.” Ky.
Speedway, LLC v. Nat’l Ass’n of Stock Car Auto Racing, Inc., No. 05-138, 2008 WL 113987, at *4
(E.D. Ky. Jan. 7, 2008) (citing Elcock v. Kmart Corp., 233 F.3d 734, 748 (3d Cir. 2000)). Cobb’s
reports were silent as to the methodology that guided the development of his criticality scale. Thus,
the district court reasoned, “even assuming that [Cobb] used multiple, independently-accepted
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methodologies in drafting his report, [BSC has] failed to satisfy [its] burden of showing that
[Cobb’s] ‘amalgamation’ is reliable.” (Id. at *8) (citing Elcock, 233 F.3d at 748).
Regarding Cobb’s failure to consider alternate explanations, the district court noted that the
report only addressed “what he considered to be [Jack Henry-caused] defects. It did not contain any
alternate explanations for the alleged issues that [BSC] encountered” with Jack Henry’s products.
At the hearing, Cobb also admitted that he did not consider alternate explanations for some of the
issues. The district court observed that the Federal Rules of Evidence instruct the court to consider
“whether the expert has adequately accounted for obvious alternate explanations.” Fed. R. Evid.
702, Advisory Comm. Note. Consideration of alternate explanations is not a Daubert factor, and
BSC correctly notes that the test does not require an expert to take into account all alternate
explanations. But that does not mean the district court abused its discretion by considering factors
that, though outside the strict confines of Daubert, are relevant to determining whether methodology
is reliable: the Daubert factors are “neither definitive, nor exhaustive.” Nelson, 243 F.3d at 251.
In light of the foregoing, the district court was within its discretion in finding that Cobb’s report and
testimony were “unreliable” because, among other things, he admitted that his methodology did not
include consideration of alternatives, including user error, connectivity problems, and legitimate
software problems.
Finally, the district court found that Cobb’s analysis and four conclusions were unreliable.
Cobb’s first conclusion, that Jack Henry did not follow basic design and programming principles
necessary for reliable transactions systems, was unreliable because his definition of “defect” and his
criticality scale (on which the conclusion was based) were unreliable. Cobb’s second conclusion,
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that Jack Henry’s “system was not sufficiently tested . . . before deployment” was unreliable because
Cobb “admitted at the hearing that he did not know what testing procedures [Jack Henry] actually
used.” See Daubert, 509 U.S. at 589-90 (“The subject of an expert’s testimony must be ‘scientific
. . . knowledge.’ The adjective ‘scientific’ implies a grounding in the methods and procedures of
science. Similarly, the word ‘knowledge’ connotes more than subjective belief or unsupported
speculation.”) (alteration in original) (footnote omitted) (quoting Fed. R. Evid. 702). Cobb’s third
conclusion was that there were “systemic problems with the interface” between various Jack Henry
products—but, the district court observed, he came to this conclusion “without even reviewing the
design template for the interface.” This opinion is not reliable because Cobb did not specifically
identify any of the alleged problems with the interface in either of his reports. Cobb’s fourth and
final conclusion was that “fixes to the system were not sufficiently tested before they were
deployed.” But, as the district court pointed out, Cobb admitted not knowing what Jack Henry’s
testing procedures actually were.
The district court did not abuse its discretion, and so we need not determine whether the
excluded testimony would have been outcome determinative. Nida, 7 F.3d at 527.
III. Prejudgment interest
Following the jury verdict, the district court awarded Jack Henry prejudgment interest on its
damages, calculated at a rate of 18% pursuant to its analysis under Missouri law.
BSC argues that, in so doing, the district court erred for three reasons: (i) Kentucky law
should have governed because Kentucky was the “forum state”; (ii) Jack Henry’s damages were not
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liquidated; and (iii) the EFTA does not provide an 18% interest rate to prejudgment interest. We
disagree.
We review a trial court’s award of prejudgment interest for an abuse of discretion. See Scotts
Co. v. Garden & Pet Co., 403 F.3d 781, 788 (6th Cir. 2005).
A. Governing Law
The parties agree that “prejudgment interest is a substantive aspect of damages in a diversity
case and is thus properly viewed as a matter of state law.” Diggs v. Pepsi-Cola Metro. Bottling Co.,
861 F.2d 914, 924 (6th Cir. 1988) (quotation and citation omitted). But they disagree about which
state’s law applies. BSC contends that Kentucky law controls, citing our unpublished decision in
Willits v. Peabody Coal Co., Nos. 98-5458, 98-5527, 1999 U.S. App. LEXIS 21095 (6th Cir. Sept.
1, 1999), for the proposition that the “question of prejudgment interest in a diversity action is
governed by the law of the forum state.”
Jack Henry asserts that Missouri law applies because, when assessing prejudgment interest,
courts look to the law of the state that governs the cause of action. See FDIC v. First Heights Bank,
FSB, 229 F.3d 528, 542-543 (6th Cir. 2000)); Truform Inc. v. GMC, 80 F. App’x. 968, 975 (6th Cir.
2003). Because Missouri law governed the contract claim, it argues, it governs the prejudgment
interest question, as well.
The case law does not address this issue head-on, but we find Jack Henry’s argument
persuasive. Peabody, on which BSC relies, is an unpublished opinion that discusses prejudgment
interest in just two sentences. It relies on Rhea v. Massey-Ferguson, Inc., 767 F.2d 266, 270 (6th
Cir. 1985), which is factually distinguishable because, unlike here, there is no indication in Rhea that
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the parties contractually agreed to be bound by the law of a given state, and then were so bound by
the adjudication of their substantive claims.5
Our decision in First Heights (on which Jack Henry relies) indicates that courts look to the
law of the state that governs the cause of action when assessing prejudgment interest. In that case,
the law of the forum state was not the law that governed the cause of action, and we applied the law
governing the action (Texas law) to the prejudgment-interest question. First Heights, 229 F.3d at
542-43. While First Heights did not state outright that its approach is the law, its approach is not
only precedent, but also sensible: the parties agreed to be bound by Missouri law, and it would be
strange indeed to carve out the issue of prejudgment interest and apply Kentucky law while Missouri
law governs the rest of the case. Moreover, we have found no cases mandating such a result. We
thus conclude that Missouri law governs the determination of prejudgment interest.
B. Liquidation
Under Missouri law, prejudgment interest is available for contract damages if those damages
are liquidated, meaning they are “fixed and determined or readily ascertainable by computation or
a recognized standard.” Jablonski v. Barton Mut. Ins. Co., 291 S.W.3d 345, 350 (Mo. Ct. App.
2009) (internal quotation marks omitted). Contract damages are not liquidated where calculating
the damages would require “variable, speculative, and uncertain” estimates. Children Int’l v. Ammon
Painting Co., 215 S.W.3d 194, 204 (Mo. Ct. App. 2007). When an award of damages involves a
5
Other cases seeming to articulate the Peabody principle are also factually distinguishable:
neither Diggs, 861 F.2d at 924, nor American Anodco, Inc. v. Reynolds Metals Company, 743 F.2d
417 (6th Cir. 1984), nor Clissold v. St. Louis-San Francisco Railway Company, 600 F.2d 35 (6th Cir.
1979), addresses whether the parties agreed to be bound by the law of a given state.
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liquidated amount, an award of prejudgment interest is mandatory. Columbia Mut. Ins. Co. v. Long,
258 S.W.3d 469, 480 (Mo. Ct. App. 2008).
The EFTA provides the formula for calculating the early-termination fee that the jury
awarded Jack Henry. The fee equals “the average monthly billing exclusive of pass through cost . . .
for the past twelve months multiplied by the number of months . . . remaining in the contract term.”
The EFTA also provides that the early-termination fee is “immediately due and payable” upon
“receipt of [BSC’s] intention to” terminate Jack Henry’s processing services. Thus, at the time of
BSC’s breach, either party could have used the EFTA agreement and the billing records to determine
the amount of the early-termination fee. It was therefore “readily ascertainable by computation” and,
as such, liquidated. Jablonski, 291 S.W.3d at 350.
BSC argues that, the foregoing notwithstanding, its assertion of a counterclaim for breach
of the EFTA means, ipso facto, that the claim was not liquidated. This is wrong: under Missouri
law, if the amount of damages is readily ascertainable, then neither disputing liability nor filing a
counterlcaim or a crossclaim renders the damages unliquidated. See Jerry Bennett Masonry, Inc. v.
Crossland Constr. Co., 171 S.W.3d 81, 90 (Mo. Ct. App. 2005) (“The mere fact that a party denied
liability or defends a claim against him, or even the existence of a bona fide dispute as to the amount
of the indebtedness, does not preclude recovery of interest.”); Bolivar Insulation Co. v. R. Logsdon
Builders, Inc., 929 S.W.2d 232, 236 (Mo. Ct. App. 1996) (“[T]the fact that Owner interposed a
crossclaim against Logsdon with respect to the amount owed did not render Lodsgon’s claim
unliquidated.”).
C. The EFTA’s provisions
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BSC’s final argument is that, even if an award of prejudgment interest is proper, it was error
for the district court to use an 18% interest rate. That rate, it argues, applies only to outstanding
charges for products and processing services, not to the early-termination fee. We disagree.
The EFTA provides the same interest rate for all payments, whether for products, services,
early-termination fees, or anything else: 18%. Section 9 of the EFTA is entitled “Payments.” It
provides:
Client agrees to pay upon presentation by [Jack Henry] of an electronic funds transfer
debit for such amount, the then applicable charges for the Products covered thereby.
Unless specified otherwise, all amounts are due when the Processing Services have
been completed or other Products provided. [Jack Henry] shall provide an invoice
to the Client for review prior to initiation of the electronic funds transfer debit. Set-
up fees and annual fees will be invoiced and are payable in advance. Amounts
outstanding after the due date are subject to an interest charge to date or payment of
the lesser of 18% per annum or the highest legally allowable rate.
Thus, the “Payments” section of the EFTA discusses numerous types of payments, sometimes
defining the payment and sometimes not. It mentions products, processing services, set-up fees, and
annual fees—but it also discusses payment “amounts outstanding” in general. The most natural
reading of the provision as a whole and the final sentence in particular is that it pertains, as it is
labeled, to payments of whatever type. BSC asserts that “the early termination fee is addressed in
an entirely different section of the EFTA,” i.e., Section 3. That section indeed discusses the fee, but
provides no interest rate. BSC seems to argue that only Section 3 applies where the fee is at issue,
but the more reasonable reading of the contract is that Section 3 and Section 9 discuss the early-
termination fee—the former in general, and the latter with regard to how that fee is treated under the
contract’s payment scheme.
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In light of the foregoing, we affirm the district court’s award and calculation of prejudgment
interest on the early-termination fee.
IV. Postjudgment interest
Following the jury’s verdict, the district court awarded postjudgment interest at .22%,
compounded annually, pursuant to 28 U.S.C. § 1961. On appeal, Jack Henry asserts that § 1961
does not apply, and that the interest rate should have been 18% (equivalent to the prejudgment
interest rate under the EFTA). Jack Henry is wrong.
We review a district court’s determination of postjudgment interest for an abuse of discretion,
unless it raises an issue of statutory interpretation, in which case we review de novo. See Scotts, 403
F.3d at 788. Here, there is no question of statutory interpretation because the issue is whether the
EFTA itself circumvents federal law.
The default rule is that, “in diversity cases in this Circuit, federal law [i.e., § 1961] controls
postjudgment interest” even while state law governs awards of prejudgment interest. Estate of
Riddle v. S. Farm Bureau Life Ins. Co., 421 F.3d 400, 409 (6th Cir. 2005) (internal quotation marks
omitted). Jack Henry asserts, however, that the parties can and did contract around § 1961 by
including a Missouri choice-of-law provision. Under Missouri law, a contractual interest rate applies
to judgments on the contract. See Green Acres Enters., Inc. v. Freeman, 876 S.W.2d 636, 641 (Mo.
Ct. App. 1994); Mo. Rev. Stat. § 408.040. Thus, Jack Henry argues, it was entitled to 18% interest
on the postjudgment award.
As with prejudgment interest, the case law is less than dispositive. We note, however, that
at least one sister circuit directly addressed this issue, holding that federal law controls despite a bare
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choice-of-law provision like the EFTA’s. See FCS Advisors, Inc. v. Fair Fin. Co., 605 F.3d 144, 148
(2d Cir. 2010) (“[A] general choice-of-law provision . . . does not alter the application of the federal
rate to the calculation of [postjudgment] interest in diversity cases.”). What is more, the weight of
authority is that the federal rule applies unless the contract includes “language expressing an intent
that a particular interest rate apply to judgments or judgment debts” that is “clear, unambiguous[,]
and unequivocal.” Id. at 148. In light of the foregoing, we conclude that the EFTA’s bare choice-of-
law provision is insufficient to replace the default rule. The settled principle that, under federal law,
once a claim is “reduced to judgment, the original claim is extinguished and merged into the
judgment” supports this result. Kotsopoulos v. Asturia Shipping Co., 467 F.2d 91, 95 (2d Cir. 1972);
see also In re Reisbell, 586 F.3d 782, 794 (10th Cir. 2009); Westinghouse Credit Corp. v. D’Urso,
371 F.3d 96, 102 (2d Cir. 2004). Phrased differently, the EFTA’s default contractual interest rate,
without more, cannot govern the postjudgment interest rate because, upon reduction to judgment,
the original claim no longer exists.
For these reasons, we affirm the district court’s award and calculation of postjudgment
interest.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment regarding BSC’s
motion for judgment as a matter of law, BSC’s motion for a new trial, and prejudgment and
postjudgment interest.
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