Page 33 - Economic Damages Calculation

• Did the entity have adequate capital to fuel the growth expectation?

• How can past lack of profitability be reconciled with expectations about the future?

• Is the price to be charged in the future reasonably achievable?

The cases discussed within this section continue the theme seen in other matters, namely that courts
have indicated that they do not look favorably upon expert analyses premised on unsupported infor-
mation, or information which has been developed and delivered by individuals who are incapable of de-
fending what has been developed.

Cases Evidencing Projections Were Reasonably Known to the Defendant

General Observations

When provided with management-prepared information in the context of litigation, the courts have indi-
cated that experts should consider the potential motives behind the development of the projections. This
includes whether the projections were prepared in the normal course of business, or prepared for litiga-
tion. An additional consideration is whether the opposing side in litigation has previously seen the finan-
cial projections, and potentially may have accepted them as reasonable in contract negotiations. In this
scenario, one view might take the position that because the opposing side "accepted" the projections, it
cannot now complain later in litigation that the projections are unreasonable and that they do not meet
the reasonable certainty standard. Another view may hold that irrespective of whether the projections
were accepted in a negotiation, or otherwise were relied on outside of litigation, the issue is not relevant
in connection with an evaluation of whether an expert’s opinion in litigation meets the FRE 702 and
Daubert standards for admissibility.

S & K Sales Co. v. Nike, Inc.

In this appeals case, Nike (the "defendant") sought to overturn a jury’s damages verdict awarded to S&K
Sales (the "plaintiff") in connection with a claim for breach of fiduciary duty arising when one of the
plaintiff’s employees left and took business to the defendant. fn 30 As part of the employee’s negotiations
with the defendant, a financial projection was prepared by the employee and provided to the defendant,
which it then relied on for internal purposes. The plaintiff used the projection as part of its damages
claim, and the defendant questioned the reliability of the projection, and sought to disallow the jury’s
lost profits decision in the appeal. The following is the court’s assessment of the use of the projection:

[Defendant’s] primary objection is the way in which [Plaintiff’s] estimated lost profits were pre-
sented to the jury. In particular, [Defendant] argues that [Plaintiff’s] projections of future [De-
fendant] sales were much too high, and that its projections of future [Defendant]-related expens-
es were too low. But as the district court pointed out, there were two base figures from which the
jury could have calculated [Plaintiff's] lost profits. The first was the undisputed evidence of
[Plaintiff’s] sales and commissions on [Defendant] products for the last full year of sales under
the 1982 Agreement. The second basis was the $24 million estimate of fiscal year 1985 sales
made by [Plaintiff’s former employee] in his 1984 proposal to [Defendant] and adopted by [De-

fn 30 S & K Sales Co. v. Nike, Inc., 816 F.2d 843 (2d Cir. 1987).

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