Page 15 - Acertaining Economic Damages Calculation

Cases Excluding Expert Testimony Due to Analytical Gaps

As the following cases demonstrate, the courts have shown a willingness to exclude expert testimony re-
garding damages when there is inadequate analysis supporting the revenue and growth rate estimates
employed. For example, several of the cases involve situations in which the plaintiff side expert(s) based
revenue and growth estimates on data such as marketing plans and projections developed by the defend-
ant. This data was adopted without any critical analysis, largely on the premise that it was reasonable to
do so because such data was prepared by the defendant and provides credibility. Similarly, the courts
have regularly excluded potential expert testimony in situations in which the proffered growth rates are
"untethered" from any analytical process establishing the reasonableness of the growth rates employed.

Chemipal Ltd. v. Slim-Fast Nutritional Foods Int'l, Inc., 350 F. Supp. 2d 582 (D. Del. 2004)

Plaintiff's expert quantified past lost profits of approximately $3.2 million and future lost profits of ap-
proximately $2.6 million in connection with a dispute surrounding the alleged breach of a distribution
agreement for defendant’s diet products in Israel. In calculating the plaintiff’s alleged damages, the
plaintiff’s expert asserted the following:

• Had the defendant spent $700,000 on advertising with respect to the diet products, the plaintiff
would have initially generated annual sales of $2 million. The revenue estimate, in turn, was
based upon a marketing plan developed by a third-party advertising firm used by the defendant,
which estimated the overall size of the diet market in Israel, the portion of that market that relat-
ed to slimming products, and the percentage of the slimming product market that could be
achieved by the defendant.

• The lost sales would grow into the future at rates consistent with growth rates that the expert as-
serted were experienced with other products with which he was familiar.

Defendant challenged the admissibility of the plaintiff’s expert’s opinion, which the court granted on the
basis that the expert’s opinion was not reliable, resulting in a damage claim that was speculative. In
reaching this conclusion, the district court noted that the plaintiff’s expert simply adopted the third-party
advertising plan without analyzing the underlying data. Further, the court concluded that the expert did
not understand the methodology used to gather the information or the methodology used by those who
performed the research for the secondary sources used to support the market share estimates. Critically,
the court stated that the expert "did not know what he was basing his [damage] testimony on," with the
court pointing to the expert’s deposition testimony. Rejecting plaintiff’s arguments in support of its ex-
pert’s damages calculation, the court stated the following:

That [cited] case [by plaintiff], however, did not address the admissibility of expert testimony,
and, more specifically, it did not address the propriety of a damages expert making untested, and
unverified marketing projections the foundation of a damages calculation. Therefore, it does not
support Chemipal's argument for [its expert’s] reliance on the Grey 1997 Plan. fn 2

fn 2 Chemipal Ltd., 350 F. Supp. 2d at 592.

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