Page 27 - Acertaining Economic Damages Calculation

evaluate the market conditions before and after the time of injury, and based lost profits on gross sales,
which was deemed to be an overgeneralization that failed to analyze the lost profits associated with the
specific products at issue.

In drawing the parallels between McGlinchy and the proffered damages testimony by Edulog’s expert,
the district court noted that the expert’s report and deposition testimony were inconsistent. In his report,
the expert asserted that Edulog sustained $73.5 million in lost profits due to Laidlaw’s failure to use its
best efforts. However, in his deposition, the expert admitted that he could not attribute any of the lost
profits to the alleged wrongdoing and could only say that Edulog experienced a decline in software
sales. Moreover, the expert admitted that he did not consider any factors, other than the alleged miscon-
duct, that might have caused a decline in sales.

The district court also noted that the expert estimated revenue growth at 15% per year to allow Edulog’s
revenues to grow to match those of a competitor. However, in making the assumption, the expert had no
idea whether the competitor’s revenues included revenues from products other than routing software.

Based upon the deficiencies identified, the district court concluded that Edulog produced only specula-
tive evidence with respect to damages and did not show that it would be able to prove its lost profits
with a reasonable degree of certainty.

Celebrity Cruises, Inc. v. Essef Corp., 434 F. Supp. 2d 169 (S.D.N.Y. 2006)

Celebrity Cruises, Inc. and Fantasia Cruising, Inc. (Celebrity) sought lost profits and loss of business en-
terprise value damages from Essef Corp., Pac-Fab, Inc. and Structural Europe N.V. (Essef) related to the
outbreak of Legionnaires’ disease on one of Celebrity’s cruise ships. Each side proffered multiple ex-
perts on the damage issues, and each sought to preclude the experts from testifying on the basis that the
testimony was unreliable under Daubert. In evaluating the admissibility of the testimony, the district
court considered numerous issues related to revenue and growth rate estimates used by the experts in an-
alyzing lost profits, most of which focused on the analyses offered by Celebrity’s experts. All told, Ce-
lebrity offered five different expert opinions on lost profits, reflecting a variety of different approaches
to quantifying the asserted damages.

The first of Celebrity’s experts provided a two-stage damage analysis consisting of lost profits of $80.1
million purportedly attributable to the outbreak, and a loss of enterprise value of $144.9 million as a re-
sult of the incident. With respect to the lost profits analysis, the district court examined the expert’s
analyses surrounding the factors that he acknowledged drove Celebrity’s profits — capacity, occupancy,
and pricing. Further, it evaluated the expert’s use of market proxies, Royal Caribbean Cruises, Ltd.
(RCCL) and Carnival Corp. (Carnival), for consideration of the same factors that drove Celebrity’s prof-
its. In doing so, the district court noted the following:

• Capacity was a known quantity for both Celebrity and the proxies.

• Occupancy and pricing are interdependent in that, to some extent, a cruise line can increase oc-
cupancy by lowering prices.

• Pricing, measured as revenue per passenger per cruise day (gross per diem), was the key varia-
ble.

The expert noted that while Celebrity’s historical gross per diem was significantly lower than the prox-
ies, it was able to raise its gross per diem faster than the proxies such that by the time of the incident, it

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