Page 67 - Acertaining Economic Damages Calculation

dicated shortcomings in the pre-litigation projections, the court reversed the jury’s award and remanded
the case for further proceedings.

Sunward Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511 (10th Cir. 1987)

Dun & Bradstreet (D&B), which provided its subscribers with financial information about privately-
owned businesses, was found to have supplied inaccurate reports that grossly understated the three
plaintiff corporations’ sizes over a two-year period. At trial, the plaintiffs’ damages expert testified to
damages of between $7.64 million and $11.29 million. Although, the jury awarded damages of $3.85
million, approximately half of the expert’s low-end estimate, the verdict was subsequently appealed by
D&B.

Plaintiffs’ expert assumed that the plaintiffs should have achieved sales equal to 80% of the average
sales experienced by member companies of the Metal Building Manufacturer’s Association (MBMA),
given that Sunward Corporation’s sales in the years preceding the trial were approximately 80% of the
MBMA average. He then applied historical profit margins to derive the amount of damages. The court
was critical of plaintiffs’ expert simply accepting the 80% MBMA figure as the sole basis to project but-
for sales.

No variables, such as geographic market, member variables within the MBMA, and so on, were
isolated and analyzed by [Plaintiff’s expert]. He relied solely upon his 80 percent figure, nothing
more, except for one adjustment at trial to account for farm/commercial mix.

It was equally critical of his use of an average profit margin and a scenario using a lower profit margin,
given the rapidly declining profits experienced by Sunward, which suggested that the company may
have been unprofitable throughout the expert’s damage period. Moreover, the low end of his range of
damages reflected profits that were higher than any other year.

...[T]he plaintiff must establish his damage by the most accurate basis possible under the circum-
stances. He must produce the best evidence reasonably obtainable. The underscored language
focuses on the problems we perceive in [the Expert’s] testimony... [T]hat testimony is so specu-
lative that it violates the requirements that conclusions as to damage must have a rational basis
and be the result of just and reasonable inference. [The Expert’s] calculations were nothing more
than an exercise in creative mathematics. fn 6

Although the failure to account for rapidly declining profits was likely the more serious flaw that led to
the exclusion of plaintiff’s expert’s testimony, the court’s criticism of his complete acceptance of the
MBMA market data suggests that it may be prudent for the damages expert to consider adjustments that
account for differences between the subject business and the market data or be able to explain why ad-
justments would be unnecessary.

Best Evidence and the Use of Plaintiff’s Other Businesses

In those instances in which the plaintiff’s business does not have a sufficient track record to establish ev-
idence of profitable operations or if circumstances in the damage period have changed significantly from

fn 6 Sunward Corp., 811 F.2d at 541, quoting Hoffer Oil Corp. v. Carpenter, 34 F.2d 589, 592 (10th Cir. 1929), cert. denied, 280 U.S.
608 (1930) (emphasis added).

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