Page 23 - Acertaining Economic Damages Calculation

Right's revenues to determine whether the growth in early 2006 was the result of factors other than new
management by stating the following:

The positive growth could have been "the result of industry conditions that did not last through-
out the interruption period," or simply "an aberration." Only a more thorough analysis of the rea-
sons for the growth would have supported [Expert’s] choice of a projected growth rate. In re-
sponse to Manpower's argument that the choice of growth rate was a factual assumption that
could be tested at trial, the district court concluded that "an ordinary trier of fact lacks the exper-
tise necessary to judge how the actions of Right's managers impacted the company's growth."
Without expert testimony on the issue, a trier of fact "could only speculate as to whether there
was any causal connection between the managers' actions and the increased growth." fn 13

The district court concluded that if

[Expert] [had] not chosen such a short base period for calculating lost profits," it "might have
found his analysis reliable." The court explained that the expert had access to historical data that
showed a declining trend in Right's monthly revenues, but that he instead chose to treat Right as
essentially a new business, the valuation of which requires examination of other indicators to
make up for the lack of a track record. [Because] the Expert did not examine such indicators —
such as the performance of comparable firms — his selection of the growth rate was based simp-
ly on assumptions, rather than reliable principles and methods. fn 14

Manpower moved for reconsideration of the district court’s decision, arguing that, among other issues,
the district court misapplied Rule 702 and Daubert by taking out of the jury's hands the questions of
whether the expert reasonably relied on the testimony of Right executives and whether a growth rate de-
rived from a five-month period was reasonable. The district court denied the motion for reconsideration,
affirming its earlier determination that the methodology employed was reliable, but that the use of a
growth rate derived from the analysis of a five-month period was not.

The appeals court concluded that the concerns raised by the district court related to the conclusions
reached, not the reliability of the methodology employed. As the appeals court noted, the expert consult-
ed the policy to ascertain the methodology for calculating the business interruption loss, and the district
court expressly concluded that his analysis was consistent with the policy. Moreover, the expert used
growth-rate extrapolation, which the district court determined was a sound methodology. On this basis,
the appeals court stated that the district court’s assessment of the reliability of the methodology ought to
have ceased, rather than proceeding to an assessment of the quality of the data inputs selected in the
growth rate extrapolation methodology. In the view of the appeals court, the selection of data inputs to
employ in a model is a question separate from the reliability of the methodology reflected in the model
itself.

Ultimately, the appeals court concluded that the district court supplanted the adversarial process with its
admissibility determination, leaving Manpower with no competent evidence to prove its business inter-
ruption damages and ensuring summary judgment for the carrier. In doing so, the district court set the

fn 13 Id.

fn 14 Id.

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