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Many people believe that an outside damages expert can lend credibility and objectivity to a legal argument. But, every so often, this belief is put to the test. A 2008 case, ICE Corporation v. Hamilton Sundstrand Corporation, illustrates:
ICE Corporation filed suit against two companies, Ratier-Figeac S.A.S. and Hamilton Sundstrand Corp., related to its airplane de-icing technology. In 2008, the jury found Ratier liable for breach of good faith and fair dealing as well as misappropriation of three trade secrets under the Kansas Uniform Trade Secrets Act (KUTSA). The jury awarded ICE $153,708 on the breach of contract claim and $4,795,300 on the misappropriation of trade secrets claim.
Hamilton was also found liable for unjust enrichment and misappropriation of trade secrets; the jury awarded $35,825 on the unjust enrichment claim, but the plaintiff’s jury instructions inadvertently omitted a special interrogatory to quantify the amount of compensatory damages Hamilton owed on the misappropriation of trade secrets claim.
The omission was accepted as an honest mistake and a brief bench trial was held in 2009 to determine whether Hamilton was liable for compensatory damages. Hamilton contended that the plaintiff couldn’t recover twice for the same wrong.
The defendant also argued that the damages expert provided insufficient evidence to support its lost profits calculation. Specifically, Hamilton found flaws in the expert’s production, cost, pricing, unit sales and profitability assumptions.
The court opinion? “Absolute certainty in proving lost future profits is not required.” Instead, the court must be guided by “some rational standard.” In other words, damage estimates should be based on judgment, not guesswork.
The court went on to review the evidence supporting each key assumption in the ICE expert’s analysis. It found that the expert’s assumptions were well supported by the evidence and testimony of several independent witnesses. Furthermore, the court ruled that many assumptions were conservative — possibly understating damages.
For example, the expert used lower costing data from 2006 even though the contract was negotiated in 2005. He also used pricing negotiated by a competitor despite the fact that it was lower than ICE’s quotes for similar technology. Additionally, the units of production didn’t include possible sales to China, the Russian states or the United States, though those were viable markets for airplane de-icing technology.
It’s also noteworthy that the expert provided no opinion about the value of the trade secrets themselves. Instead, he simply estimated the value of the plaintiff’s lost sales from the misappropriated trade secrets. Because of his conservative approach, the court gave “great weight” to the expert’s opinion and awarded the plaintiff the full amount of compensatory damages. The court did, however, recognize that any award against Hamilton must be “joint and several,” as a plaintiff may not recover twice for the same wrong.
No specific professional designation qualifies a financial professional to calculate lost profits or economic damages. But the ideal candidate understands business appraisal, corporate finance, accounting, marketing and tax issues.
Once an expert has been selected, courts tend to value objectivity and reasonableness. Experts who advocate on behalf of their client’s financial interests or who make aggressive assumptions about prospective earnings may be perceived as “hired guns.” In ICE Corp., the court counterbalanced some speculative assumptions with the expert’s “conservative” approach.
Expert opinions also should be supported by objective third-party evidence, such as fact witness testimony, historic profitability, industry trends and competitor pricing.
Ultimately, expert witnesses don’t just benefit plaintiffs. They’re equally important for defendants. Without a competent opposing expert to point out flaws or alternate assumptions, courts have carte blanche authority to accept either side’s expert opinion in its entirety.
Doeren Mayhew’s Valuation and Litigation Support Group offers marital dissolution, consulting, forensic accounting, expert witness, economic loss and business valuation services to assist Troy, Houston and Ft. Lauderdale litigants. Contact us for more information.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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