Page 28 - Economic Damages Calculation

We don’t know. fn 20

The analysis set forth by the court in this matter is again consistent with the analyses undertaken in other
matters discussed in the chapter, including Legier v. Great Plains and U.S. Salt v. Broken Arrow. As
discussed in both of those cases, the courts considered the competence and position of the person prepar-
ing the management projection to evaluate whether it was reasonable to rely on that particular manage-
ment projection, and also evaluated the testing and analysis performed by the expert to assess the relia-
bility of the projections. Further, as in U.S. Salt v. Broken Arrow, the court ultimately precluded the ex-
pert’s testimony on damages that relied upon management-supplied information that was deemed to be
unsupported and untested.

JRL Enters., Inc. v. PROCORP Assocs., Inc.

As noted earlier, the facts in JRL v. Procorp were analyzed by the court in Legier v. Great Plains in
connection with a challenge of Legier’s expert who relied upon management-supplied information. fn 21
Consistent with many of the other cases already examined, the JRL v. Procorp case addressed whether
reliance on management-supplied information is an issue of admissibility or one of the weight of the ev-
idence; touched on whether the person within management that prepared the projections had a reasona-
ble basis for doing so as part of his or her job duties; and examined the issue of whether the projections
were prepared for purposes of litigation or in the normal course of business.

JRL (the "plaintiff") is a computer software company that considered an initial public offering. Procorp
(the "defendant") provided outsourced human resource functions to the plaintiff. The relationship
soured, and the plaintiff sued the defendant for breach of contract, negligence, and breach of fiduciary
duty. The plaintiff alleged the defendant disclosed confidential information to the plaintiff’s bank, which
had allegedly conspired with the defendant’s employee and the plaintiff’s CFO for a hostile take-over of
the plaintiff. The plaintiff alleged this prevented it "from earning any productive revenue."

The plaintiff hired a CPA to perform a damages analysis and to provide expert testimony. The defendant
filed a Daubert and FRE 702 motion to exclude the plaintiff’s expert from testifying based upon the ex-
pert’s reliance on a projection prepared by the plaintiff’s vice president of sales (VP of sales), and dis-
cussions with the plaintiff’s CEO. As described by the court, the projection reflected a list of potential
customers, expected revenues and expenses from the potential sales, and the estimated probability that
the sales would occur. Moreover, the projection was based solely on the VP of sales’ experience with
the plaintiff and knowledge of the plaintiff’s business.

In his deposition, the plaintiff’s expert testified that he was "merely taking the facts as given to me by
[plaintiff’s CEO] and putting them in a format so that you can determine the economic loss." fn 22 The
plaintiff argued that its expert was not opining on the probability, and that its VP of Sales would do so.
However, the court pointed out that the plaintiff’s VP of sales testified that he was not an expert on sta-
tistics or probabilities. Therefore, the defendant argued that the numbers in plaintiff’s expert’s report
were unreliable because they were not based upon independent, verifiable figures. The defendant further

fn 20 Id.

fn 21 JRL Enters., Inc. v. Procorp Assocs., Inc., 2003 WL 21284020, at *1 (E.D. La. June 3, 2003).

fn 22 Id. at *5.

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