Page 35 - Economic Damages Calculation

Indeed, there is no evidence that a thermostat like the T-2000 has ever been produced and sold
by anyone. The very viability of the product is in doubt in this case. The businesses in the former
cases actually operated at a profit, albeit for a short time; Teletron never did. Teletron's expecta-
tions were at best hopeful; in reality, they were little more than wishful.

Teletron strenuously argues that even TI thought its projections were reasonable. The fact that TI
shared Teletron's hopes adds no substance to them. If anything, the circumstances of TI's failure
to perform its agreement demonstrate that Teletron's business was a gamble. Had TI performed,
it stood to profit from Teletron's success; in any event, it would have avoided liability to Teletron
for damages. TI's inability to produce a working model of the T-2000, despite the strong positive
incentive of profit and the stronger negative incentive of avoiding very substantial liability, indi-
cates that Teletron's proposed business was not feasible. Teletron's evidence that a strong market
existed for its unique thermostat at a moderate price is beside the point; no such product ever ex-
isted.

In sum, there is no evidence in this case to prove with reasonable certainty what profits Teletron
lost on account of TI's failure to perform its contract. The trial court properly refused to award
such profits to Teletron. fn 33

Clearly, the Texas Supreme Court recognized that while both parties may have relied on the same set of
projections, the use of those projections to support a damage claim should consider an evaluation of the
overall substance, reliability, and probability of the projections rather than whether both parties in the
dispute believed in the projections.

The S&K Sales and Texas Instruments cases highlight an issue that can be faced by damages experts —
specifically, whether it is reasonable to rely on projections that both parties to the dispute accepted prior
to litigation. In at least these two cases, the courts reached differing conclusions about whether such pro-
jections provide a reasonable basis to support the damage claim.

Summary Observations and Conclusion

As discussed at the beginning of this chapter, damages experts regularly rely on management-provided
assumptions and information when providing various services, including litigation services. Within the
litigation realm, professional standards, FRE 702 and Daubert, all touch on the requirement that expert
analysis be based upon "sufficient relevant data." However, in analyzing the previous cases, there is no
set formula prescribed by the courts to identify what constitutes "sufficient relevant data." Rather, the
courts appear to weigh a multitude of factors, including the source of the management-supplied infor-
mation, the expertise of the individuals who developed and supplied the information, the circumstances
under which that information was developed and used by the parties, and the level of testing and analy-
sis performed by the expert to evaluate the use of the information. Reflecting these considerations, the
cases examined demonstrate that the courts appear to prefer that experts do as follows:

• Use management-supplied projections that rest on assumptions that are testable, and that have a
linkage to the operative reality of the company’s business.

fn 33 Id. at 280-81.

© 2020, Association of International Certified Professional Accountants 33