Page 24 - Economic Damages Calculation

US Salt, Inc. v. Broken Arrow, Inc.

In this case, the plaintiff alleged that the defendant violated an agreement between the parties when it
stopped shipping salt. fn 8 The court agreed with the plaintiff and granted its motion for summary judg-
ment on the liability issues. The case then turned on the damages arising from the breach. In support of
its lost-profits claim, the plaintiff submitted two reports from its expert, both of which relied heavily on
assumptions and estimates provided by the plaintiff’s management. The defendant moved to exclude the
plaintiff’s expert under FRE 702.

Upon consideration of the defendant’s motion to exclude, the court ruled that the plaintiff’s damages ex-
pert’s testimony was not sufficiently reliable under FRE 702, and specifically that it was filled with un-
supported assumptions. The court specifically focused on the expert’s reliance on assumptions and esti-
mates provided by the plaintiff’s president and owner, and the expert’s lack of analysis to verify and test
the reliability of the assumptions and estimates, including through an analysis of the relevant market. As
the court stated, "Although the law does not require mathematical certainty in the proof and calculation
of lost profits, it requires evidence of definite profits grounded upon a reasonable factual basis."

It is unclear whether the court here would have allowed the expert testimony if the underlying manage-
ment projection was something more than "speculative at best." However, the court does make a point in
inserting deposition testimony from the management person who prepared the projection.

Question: Did Mr. Capone ever tell you the volume of sale he expected to buy from you?

Answer: He gave me different estimates, and then like I say, from what he gave I had no way of
verifying to do that.

(Johnson Dep. at 217)

Question: [T]hroughout your marketing efforts were you able to get a written commitment from
any customer regarding how much they would pay for solar salt?

Answer: No.

(Johnson Dep. at 226) fn 9

From that testimony and the related commentary from the court, one can draw an inference that the
court’s view here appears consistent with Legier & Matherne v. Great Plains opinion previously dis-
cussed. The court in Legier & Matherne v. Great Plains disagreed "that an expert who relies on the pro-
jections of the third party, without independent verification, cannot satisfy Daubert’s reliability prong."
fn 10 The court allowed the expert to rely on management, but in doing so, did evaluate whether it was
reasonable to rely on that particular management projection, and also evaluated the testing and analysis

fn 8 U.S. Salt, Inc. v. Broken Arrow, Inc., 2008 WL 2277602, at *1(D. Minn. May 30, 2008).

fn 9 Id. at *3.

fn 10 Legier & Matherne, 2005 WL 2037346, at *2.

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