Page 32 - Economic Damages Calculation

The plaintiff (counter-defendant) appealed, arguing that there was insufficient evidence to support the
jury’s findings on lost profits and attorney’s fees. The court agreed, concluding that the testimony of the
defendant’s (counter-claimant’s) expert, and the underlying management-supplied data that he relied
upon, fell short of the legal requirement that lost profits be proven by competent evidence with reasona-
ble certainty.

In reaching this conclusion, the court provided its perspective on the expert’s reliance on management,
and the things that he did not do in validating the reasonableness of the assumptions. Specifically, the
court highlighted that the expert relied on rail volume information that was provided by the defendant’s
(counter-claimant’s) owner, and that the expert did not do anything to independently determine whether
there was demand for the volume assumed, or whether the defendant had the capability of meeting the
assumed demand. Instead, while the expert did evaluate the rail volume assumption against a range of
volume estimates provided by two economic viability experts who were retained in the case, he admitted
in his testimony that he did not know whether it was reasonable to conclude that the defendant (counter-
claimant) could achieve the assumed volume in any year. Moreover, the expert assumed that the defend-
ant (counter-claimant) would attain a certain level of revenue per carload of freight, but did nothing to
independently verify whether that revenue figure was a reasonable expectation for the defendant (coun-
ter-claimant).

Refer to the following information, as explained by the court:

The historical data [Defendant/Counter-Claimant’s expert] relied on in [one of the economic via-
bility expert’s] report showed that the operator of the Line in 1989 through 1993 made a profit.
However, when [Defendant/Counter-Claimant] took over, it lost money every single year that it
operated the Line. Again, [Defendant/Counter-Claimant’s expert’s] did no independent investi-
gation into [Defendant/Counter-Claimant’s] business and management practices, whether it had
a business plan showing it was capable of operating at a profit, or whether other factors might
have caused it to lose money.

**** *****

In sum, [Defendant/Counter-Claimant’s expert’s] testimony and the data he based it on fall short
of the legal requirement that lost profits be proven by competent evidence with reasonable cer-
tainty. [Defendant/Counter-Claimant’s expert] acknowledged that [Defendant/Counter-Claimant]
lost money every year it operated the rail line. There were no contracts to support the increased
revenue [Defendant/Counter-Claimant’s expert] claims [Defendant/Counter-Claimant] would
have going forward. [Defendant/Counter-Claimant’s expert’s] testimony as to how he arrived at
an estimate of the number of carloads [Defendant/Counter-Claimant] could move, how much
[Defendant/Counter-Claimant] could charge per carload, and a projection of how much it would
cost for [Defendant/Counter-Claimant] to operate are all based on unfounded assumptions.
Therefore, [Defendant/Counter-Claimant] has failed to establish lost profits as a matter of law. fn
29

From this matter, damages experts can take away the significance of addressing financial questions such
as the following:

fn 29 Id. at 581-82.

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