Page 28 - Acertaining Economic Damages Calculation

had roughly matched the proxies. The expert then assumed that the Celebrity’s gross per diem would
continue to increase in comparison to the proxies, albeit at a diminishing rate, and that it would exceed
the proxies through the damage period. However, as the district court observed, if capacity was increas-
ing, prices could be raised while maintaining profitability only if demand was also increasing. This was
true during the period prior to the incident, which was the period from which the expert derived his
growth projection. Yet, Celebrity’s own management acknowledged that demand had weakened across
the industry in the time period after the incident, and that many cruise lines were offering lower per
diems to increase occupancy. As such, the district court concluded that the premise that Celebrity could
have obtained pricing increases that outpaced the market was not supported, resulting in a lost profits
claim that lacked the reliability for expert evidence under Daubert.

The second Celebrity expert was asked to perform a similar two-stage damage analysis, which hinged on
the expected growth rate for Celebrity’s revenues, and which, in turn, was based on projected, not actu-
al, revenue growth of the same proxies used by the first expert. Specifically, prior to the incident, the
proxies projected annual growth rates over a seven-year period of between 0.6% and 4.9%, which
caused the expert to choose a "conservative" annual growth rate of 3%. However, in reality, the proxies
did not achieve growth at the level projected and, in fact, both experienced negative growth over certain
portions of the projection period. When the expert became aware that the actual growth information was
available, she declined to revise her analyses on the basis that she evaluated historical performance, con-
sidered investment analyst expectations prior to the incident, and considered other qualitative factors. In
response to this, the district court stated the following:

While this exclusively forward-looking methodology may be appropriate for valuing an enter-
prise at a single point in time... it is inadequate to measure damages attributable to an event oc-
curring after a point in time when the projections are made. An example will illustrate this. As-
sume that three percent was a reasonable projection of the future growth rate of Celebrity,
RCCL, and Carnival immediately prior to the Legionnaires' incident. Suppose, however, that
shortly after the incident, a cataclysmic event unrelated to the Legionnaires' incident halted all
cruises for a prolonged period. That would be reflected in zero (or negative) earnings for all three
companies. Yet, if Celebrity's actual profits were compared to the profits that had been projected
for RCCL and Carnival without considering their actual performance, one would reach the non-
sensical conclusion that Celebrity had suffered continuing damage entirely due to the Legion-
naires' incident, when in fact it was wholly attributable to an independent event.

Though less dramatically, that is what [Expert’s] analysis does. Celebrity, RCCL, and Carnival
all fell short of projections. [Expert] attributes their negative growth rates to a decline in demand.
Yet she allocates virtually all of that decline in Celebrity's case to the Legionnaires' incident
without making any effort to determine the cause of the decline for the two comparable lines.
Having utilized those companies in projecting Celebrity's expected growth, it is disingenuous
then to ignore their actual performance and how it might cast light on factors other than the Le-
gionnaires' incident that had an impact on Celebrity. Her lost profits analysis therefore lacks the
requisite reliability. fn 19

The third Celebrity expert employed a different approach in his lost profits analysis by initially project-
ing the losses in a manner consistent with a five-year plan developed by Celebrity management prior to

fn 19 Celebrity Cruises, 434 F. Supp. 2d at 183.

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