Page 25 - Acertaining Economic Damages Calculation

ions that are premised on data that is asserted to be suspect. This is particularly true when the expert has
used a reliable method to estimate lost revenues and growth rates and there is an analytical foundation
for the data used in the method employed. However, other courts have stepped in to preclude expert
opinions when the court determined that the expert did not do enough to establish the integrity and relia-
bility of the underlying data used to estimate lost revenues and growth rates.

CDW LLC v. NETech Corp., 906 F. Supp. 2d 815 (S.D. Ind. 2012)

The parties in this matter are competitors that sell technology products and solutions to businesses, and
both employ sales personnel and network engineers who assist in the assessment, installation, and ser-
vice of technology systems and associated products. NETech was successful in recruiting and hiring
away a number of CDW employees from CDW’s Indianapolis office. The CDW employees who left
were subject to contractual obligations to preserve and protect confidential and trade secret information
and to refrain from soliciting customers and co-workers. CDW alleged that NETech, despite knowledge
of these obligations, induced the departed employees to breach their obligations. In support of its claims,
CDW presented an expert report that quantified past lost profits between $2.2 million and $5.0 million,
and future lost profits between $8.8 million and $13.8 million, as well as other damages. NETech sought
to exclude the expert opinion regarding past and future lost profits.

The lost profits calculation rested primarily on an analysis of certain revenues at CDW’s Indianapolis
branch that were affected by NETech’s conduct. "But for" revenues were then projected based on a
yardstick analysis that considered the growth rates experienced by other CDW branches in the Great
Lakes region. NETech attacked the yardstick analysis as employed as unreliable, specifically asserting
that it is based on a presumption that the average revenue growth for a group of other CDW offices was
a good proxy for the assumed growth in the Indianapolis office.

The district court noted that the yardstick approach is an acceptably reliable method under Daubert for
calculating lost profits only if the yardsticks are sufficiently comparable that they might be accurate pre-
dictors of what the target would have done. Specifically, the district court quoted Loeffel Steel Prods v.
Delta Brands, Inc., 387 F. Supp. 2d 794, 814 (N.D. Ill. 2005):

In order for the sampling chosen... to have the requisite predictive capacity and the reliability that
Daubert demands [the expert] had to select samples that are truly comparable... This is often re-
ferred to as the ‘yardstick approach.’ Absent the requisite showing of comparability, a damage
model that predicts either the presence or absence of future profits is impermissibly speculative
and conjectural... Of course, exact correlation is not necessary, but the samples must be fair con-
geners. If they are not, the comparison is manifestly unreliable and cannot ‘logically advance’ a
material aspect of the proposing party’s case... fn 17

The district court then concluded that the yardstick method employed by CDW’s expert did not provide
sufficiently comparable results, leading to exclusion of the expert’s lost profits opinion. In support of its
decision, the district court stated the following:

• The expert did not offer a reason why he chose the other branches as appropriately comparable.

fn 17 Loeffel Steel Prods., 387 F. Supp. 2d at 824.

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