Page 52 - Economic Damages Calculation

[D]efendants. Without proof of the causation that [the Plaintiff’s expert] assumes, his estimate of
the value of [the Plaintiff’s] business is not the measure of damages for the defamatory state-
ments that Plaintiff can prove. Thus, since those statements post-date the sharp decline in
[P]laintiff's sales and, in any event, were not disseminated widely enough to provide circumstan-
tial evidence that they totally destroyed Plaintiff's business, [the Plaintiff’s expert’s] testimony is
inadmissible. It is based on an irrational assumption and accordingly would not assist the jury in
this case. fn 47

As a result, the plaintiff’s expert was excluded. On appeal, the Second Circuit affirmed the trial court’s
decision:

To permit [the Plaintiff] to present evidence of the value of the entire business in the absence of
evidence of widespread dissemination [of defamatory remarks] would invite the jury to award
damages based on speculation. Therefore, we agree with the district court that [the Plaintiff’s ex-
pert’s] testimony assumed a causal connection that Plaintiff failed to prove. fn 48

In this particular matter, the causation assumption was also at risk because in a claim for disparagement,
New York law appeared to require that the plaintiff identify particular transactions that were lost. Ulti-
mately, the jury awarded the plaintiff $35,000 in lost sales from five specifically identified customers.

This case illustrates a key challenge for the damages expert when assuming the existence of causation. If
the assumption approaches the realm of what the Second Circuit characterized as "irrational," then at
least certain courts appear to expect the expert to perform at least some testing for, and perhaps modify,
the assumption. This is consistent with one of the most often cited opinions encountered in which the
Supreme Court held that

[n]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit
opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court
may conclude that there is simply too great an analytical gap between the data and the opinion
proffered. fn 49

This may place the expert in a difficult position because, post engagement, the expert may find it neces-
sary to modify the causation assumption. To do so, the expert tests the causation theory, which may be
beyond the scope of the engagement previously agreed to with the client (that is, to assume that causa-
tion will be proven at trial).

We have reviewed other decisions that have resulted in the exclusion of the damages expert when the
assumptions applied are deemed by the court to be irrational (For example, see MyGallons LLC v. U.S.
Bancorp, 521 Fed. Appx. 297 [4th Cir. 2013], discussed in chapter 4). As a result, when the damages
expert is asked to assume causation exists, it may be advantageous for the expert to perform some test-
ing of the causation theory to satisfy himself or herself of the reliability of that assumption.

fn 47 Id. at 239.

fn 48 Fashion Boutique of Short Hills v. Fendi USA, Inc., 314 F.3d 48, 60 (2d Cir. 2002) (citations omitted).

fn 49 General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).

50 © 2020, Association of International Certified Professional Accountants