Page 22 - Economic Damages Calculation

This Court finds the facts of JRL Enterprises distinguishable from those presented here. JRL En-
terprises does not support defendant’s theory that an expert cannot rely on his client’s self-
serving projects. Rather, Judge Fallon’s ruling holds than an expert should not blindly rely on the
projections of a third party when that third party disavows the reliability of those projections
himself. In JRL Enterprises, the projections were made by a sales manager with no experience in
business projections. LeMaire [a Plaintiff executive], on the other hand, was a department head
who was seeking to purchase the relevant portion of [Plaintiff]. As a potential buyer, he had eve-
ry incentive to minimize rather than maximize projections. Furthermore, he had extensive expe-
rience in his field of business. Thus, LeMaire’s projections, on which [Plaintiff’s] expert relied,
possess an element of credibility and reliability lacking in the JRL Enterprises situation. [Plain-
tiff’s expert] examined the reliability of LeMaire’s projections by independently reviewing the
past financial records of the company. fn 5

The court in this case highlighted a number of important points, including whether the expert "blindly"
relied on the projections, and also pointed out the potential motive behind the projections. As an exam-
ple, if a projection is prepared by a seller of a business for purposes of selling a company, the motive
behind the projection may be to show growth and increased profits (which some may consider optimistic
projections). The opposite is true as well, and the court pointed out that the projection was prepared by a
buyer and he "had every incentive to minimize rather than maximize" the projections. Damages experts
should be mindful of the purpose of financial projections that may be used, and consider the potential
motives, including whether the projections was for normal course business, or prepared for purposes of
litigation.

Manpower, Inc. v. Insurance Co. of Pa.

This case centered on an insurance coverage dispute, in which Manpower (the "plaintiff") claimed vari-
ous losses stemming from a building collapse that left its French subsidiary unable to access its office
space for more than a year. fn 6 The plaintiff’s expert prepared a business interruption damages calcula-
tion, including a growth rate based on the five months immediately preceding the event. The expert re-
lied on management in selecting the five months as the basis for the growth rate. The expert also had an-
alyzed multiple other periods. Certain of the growth rates showed a decline in business, and would have
resulted in a lower damages number for the plaintiff, hence the defendant’s attempt to exclude.

Initially, the District Court hearing the matter ruled that the plaintiff’s expert should be precluded from
testifying, holding that the expert was not entitled to uncritically accept the word of the plaintiff’s man-
agement regarding expected growth, and should have performed economic analyses to evaluate the fac-
tors that affected growth. The exclusion was appealed to the Seventh Circuit, which reversed the District
Court’s decision. In doing so, the Court of Appeals made a distinction between methodological issues
and the reliability of the data underlying the analyses, concluding that any issues with the expert analysis
were a function of the reliability of the information, which should go to the weight, not the admissibility,
of the testimony.

fn 5 Legier & Matherne, APAC v. Great Plains Software, Inc., No. Civ. A. 03-278, 2004 WL 1488597, at *3 (E.D. La. June 30, 2004).

fn 6 Manpower, Inc. v. Ins. Co. of Pa., 732 F.3d 796 (7th Cir. 2013).

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