Page 92 - Acertaining Economic Damages Calculation

Best Evidence and the Use of Third-Party Estimates

The existence of records prepared by third parties (that is, cost estimates, bids, or proposals) that have no
interest in the outcome of litigation may provide useful information used in a damages calculation that
meets the reasonable certainty standard. As discussed in the following case, however, the burden of
proof generally lies on the party introducing the documents and information, especially if the author of
these documents will not be available to offer testimony. To the extent an expert relies on information or
documents, or both, for which a party fails to appropriately lay a foundation at trial, such information or
documents may be found inadmissible at trial, potentially compromising the expert’s ability to establish
damages to a reasonable certainty.

BP Amoco Chem. Co. v. Flint Hills Res., LLC, 697 F. Supp. 2d 1001 (N.D. Ill. 2010)

Subsequent to the sale of a chemical manufacturing plant by BP Amoco Chemical Company (BP Amo-
co) to Flint Hills Resources, LLC (Flint Hills), BP Amoco sought a declaratory judgment that it had not
breached the asset purchase and sale agreement (PSA) entered into by the parties to effectuate the trans-
action. Flint Hills countersued BP Amoco for fraud and breach of contract, seeking recovery of its costs
of repair and the diminution in value caused by BP’s alleged breaches.

To prove its damages, Flint Hills relied upon written repair-cost estimates provided by third parties. BP
Amoco challenged these estimates, arguing that such records failed to qualify for the business-records
exception to the hearsay rule under Federal Rule of Evidence 803(6), which sets out an exception to the
rule against hearsay for business records:

A memorandum, report, record, or data compilation, in any form, of acts, events, conditions,
opinions, or diagnoses, made at or near the time, by or from information transmitted by, a person
with knowledge, if kept in the course of a regularly conducted business activity, and if it was the
regular practice of that business activity to make the memorandum, report, record, or data compi-
lation, all as shown by the testimony of the custodian or other qualified witness, ...unless the
source of information or the method or circumstances of preparation indicate a lack of trustwor-
thiness.

A document prepared by a third party may qualify as another business entity's business record
under Rule 803(6) if that entity integrated the third-party record into its records and relied upon it
in its day-to-day operations. The proponent also must satisfy the other-requirements of Rule
803(6). fn 40

BP Amoco also asserted that Flint Hills lacked the requisite evidentiary foundation to admit the third-
party estimates. Flint Hills argued that its employees would testify that (a) the cost estimates were pre-
pared in the normal course of business, (b) Flint Hills integrated the third-party estimates into its own
records, and (c) Flint Hills regularly relies on the accuracy of such work proposals and cost estimates. In
denying BP Amoco's motion to exclude this evidence, the court found the following:

In light of Flint Hills' contentions regarding the foundational facts, it intends to establish at trial,
the court cannot say in the context of a motion in limine that Flint Hills will be unable to estab-

fn 40 BP Amoco Chem. Co., 697 F. Supp. 2d at 1021.

90 © 2020 Association of International Certified Professional Accountants