Page 30 - Acertaining Economic Damages Calculation

Celebrity’s final expert ultimately testified to his lost profits analyses in the damage phase of the trial,
and his testimony, in part, led the jury to award approximately $46.6 million to Celebrity due to the in-
cident. Essef challenged the verdict in a motion for a new trial, and in doing so, renewed its challenges
to the methodology employed by the expert on the basis that the yardstick contained companies that
were too dissimilar from Celebrity to be considered valid surrogates, and because the methodology
failed to account for other factors that could have depressed Celebrity’s profits.

In evaluating Essef’s motion and challenge, the district court noted that the linchpin of the expert’s anal-
ysis was the construction of the yardstick, the validity of which could be evaluated in one of two ways:
either by (a) comparing Celebrity’s historical performance against the yardstick to evaluate whether
there was a parallel, which would allow for a reasonable conclusion that Celebrity would continue to
track the yardstick into the future, or (b) if sufficient historical data was not available, performing anal-
yses to demonstrate that the companies that comprise the yardstick were similar to Celebrity in material
respects and could, therefore, be expected to mirror its performance.

With respect to historical performance against the yardstick, the district court concluded that there was
enough of a record of Celebrity’s performance prior to the outbreak for the yardstick analysis to be ad-
missible, but there was not enough evidence to make it convincing. In the district court’s view, Celebrity
did not have enough of a track record, both in terms of time and performance as a mature company, to
provide sufficient validation of correlation to the yardstick.

The lack of a convincing track record, however, was not deemed to be fatal. Rather, the district court
concluded that the lack of a track record, coupled with a lack of sufficient similarity between the com-
panies in the yardstick and Celebrity, diminished the value, but not the admissibility, of the expert’s
analysis in establishing lost profits. Specifically, the district court identified that Carnival, one of the
companies included in the yardstick, had gross revenue of almost $2 billion, compared to $236 million
for Celebrity, and had roughly five times the number of berths. Carnival was also more diversified, with
cruise ship operations under multiple brand names, operations in different markets, and ancillary busi-
nesses, including bus lines, land tours, and hotels — all of which were included in the financial data
used to construct the yardstick. The district court also pointed to issues surrounding comparability with
another of the companies in the yardstick — ACV. While ACV was similar in size to Celebrity, its busi-
ness consisted of operating paddle wheel river boats in rivers within the United States, and a cruise ship
exclusively in the Hawaii market. Because of the flaws noted, the district court granted Essef a new trial
on the lost profits component of the damages.

Similar to cases in which the courts have precluded expert testimony regarding damages due to analyti-
cal gaps in the expert analysis surrounding lost revenues and growth rates, the cases discussed in this
section demonstrate that the courts have stepped in to preclude expert opinions when the court deter-
mined that the expert did not do enough to establish the integrity and reliability of the underlying data
used to estimate lost revenues and growth rates.

Conclusion

It is clear that the courts will exclude expert opinions that contain revenue and growth estimates not
based upon accepted methodologies and approaches, and which are generally untethered from any
meaningful analyses. Moreover, the courts have established that it is not sufficient for an expert to argue
that he or she does not have to analyze the revenues and growth rate estimate if the revenue and growth
rate estimate was prepared by the adverse party. The courts are clear that experts need an analytical basis
for relying upon data.

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