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Establishing or Challenging Causation Claims with Forensic Experts by Scott M. Bouchner, CMA, CVA, CFE, CIRA

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Posted on February 16, 2022 by Scott Bouchner

To recover lost profits or other economic damages in a civil lawsuit, a plaintiff must not only be able to establish liability and show that a defendant perpetrated a wrongful act, but, as the Florida Supreme Court decided in W.W. Gay Mechanical Contractor, Inc. v. Wharfside Two, Ltd., 545 So.2d 1348 (1989), a plaintiff must also prove that:

If counsel asks the damages expert to assume that the wrongful acts caused the plaintiff’s damages, does the expert need to consider this issue any further? The answer to this seemingly simple question is not always clear.  Consider the following example:

Defendant was accused of tortuous interference after hiring the Plaintiff’s top salesperson. In the year following the loss of this employee, Plaintiff’s sales declined by 30 percent. Plaintiff retained a damages expert, who counsel instructed to assume that the loss of the salesperson caused this decline in sales.

Based on these limited facts, it seems intuitive that the Plaintiff could have experienced a loss due to the departure of this individual. From the expert’s perspective, is this enough? Because the facts are rarely this clear, assume further that:

As depositions were taken, it became apparent that a patent on Plaintiff’s most popular product had expired around the time of the salesperson’s departure. The related product accounted for nearly 35 percent of Plaintiff’s annual sales. The market was subsequently flooded with generic alternatives. Plaintiff argued that it had countered the effect of this technology change when it developed, patented and introduced a new and improved product that, but for Defendant’s theft of its key salesperson, would have more than offset any reduction in sales.

At a hearing to exclude the expert testimony, Plaintiff’s expert acknowledged that he had not investigated nor performed any analysis of these issues, as counsel instructed him that it was not his responsibility to prove or establish causation.

Depending upon the jurisdiction and, in some cases, the judge assigned to the case, the outcome of this hypothetical Daubert challenge could vary.  In one court, the judge may rule that a damages expert is allowed to assume causation.  Another Court, however, may exclude this expert for failing to consider how the expiration and loss of an important patent would have impacted Plaintiff’s sales.

The Florida Courts are no exception to these seemingly conflicting opinions. The BK Cypress Log Homes, Inc. v. Auto Owners Insurance Co. case (2012 U.S. Dist. LEXIS 73773) involved a bad faith claim brought against an insurance company.  The Court ruled that the damages expert, who counsel asked to assume that the liability caused the Plaintiff’s damages, could simply assume causation:

It remains within the province of the jury to consider and weigh such evidence and determine whether in fact some or all of the damages determined by [Plaintiff’s expert] are causally connected to Auto-Owners’ actions.

In Nebula Glass International, Inc. v. Reichold, Inc. (U.S. District Court 454 F3d 1203 (2006)), Plaintiff’s expert went to great lengths to establish causation, which the Defendant challenged and argued that Plaintiff’s expert failed to link any losses to specific customers.  The Court ruled that “evidence of each individual customer’s motivation is not required because [Plaintiff’s] evidence, taken as a whole, sufficiently proved causation.”

These cases, however, can be contrasted with a number of other Florida cases in which the plaintiffs’ experts were excluded or a jury award was overturned.  For example, in the AlphaMed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, et al case (432 F. Supp. 2d 1319(2006)), a $78 million jury award was overturned because the Court found that the Plaintiff’s expert was unable to sufficiently show that, even though the Defendant was found liable for the alleged bad acts, its damages expert was unable to establish that these bad acts caused the Plaintiff’s damages:

For [Plaintiff’s expert’s] opinions to be of any use, AlphaMed was required to offer sufficient proof of the assumptions that [Plaintiff’s expert] accepted’ as the foundation for his opinion, most importantly—that AlphaMed’s injury was caused by Arriva’s conduct. Only upon such a showing could AlphaMed proceed to the next prong of its lost profit analysis and offer [Plaintiff’s expert’s] opinion to provide the jury with a non-speculative estimation of the amount of AlphaMed’s injury.

In Winn-Dixie Stores, Inc. v. Dolgencorp, LLC (822 F. Supp. 2d 1322 (2012)), a case in which Winn-Dixie alleged that Dolgencorp sold competing products in shopping centers where it had category exclusivity, Plaintiff’s expert was excluded on causation related issues, which prevented the Plaintiff from presenting its damages case.  The Court ruled:

The issue is what damages, if any, Defendants caused Plaintiffs by selling more groceries than allowed in the respective stores’ grocery exclusives… Accordingly, I find that [Plaintiff’s expert’s] underlying causal theory of competition does not prove causation in this case….I also find that since [Plaintiff’s expert] does not establish causation, the probative value of her evidence is substantially outweighed by the danger of misleading the jury under FED.R.EVID. 403.

In the AlphaMed and Winn-Dixie cases, the experts’ opinions were excluded because they failed to establish causal links between the Plaintiffs’ liability and the Defendants’ damages.  Yet, in the Whitby v. Infinity Radio, Inc. case (951 So. 2s 890 (2007)), the damages expert’s testimony was excluded because he failed to differentiate between factors that caused the damages (i.e. the departure and wrongful competition of a morning disc jockey at a competing radio station) from those that had nothing to do with the purported losses.

… without considering the impact of these external variables on Infinity’s profits during the period in question, [the damages expert’s] testimony failed to establish that the lost profits were the direct result of Whitby’s actions in leaving the station.

In a recent case, North Palm Motors, LLC, d/b/a Napleton’s Car Rental Center v. General Motors (Case No. Case No. 9:19-cv-80872), the Court initially denied Defendant’s motion to exclude Plaintiff’s damages expert because he was not providing any opinions on causation. However, the Court ultimately granted Defendant’s motion for summary judgment and excluded its claim for lost profits because Plaintiff failed to establish causation as a proximate cause of the damages being claimed.

Plaintiff claimed it had to turn away customers due to GM’s failure to deliver a fleet of rental vehicles as ordered and that GM diverted those vehicles to a competitor, causing damages to Plaintiff’s business. In its initial Motion for Summary Judgment, GM moved to exclude Napleton’s damages expert for assuming GM’s action alone led to a decline in Napleton’s sales and the eventual closure of its business. The Court denied the motion based on Plaintiff’s assertion that it retained the expert to calculate damages based upon the set of facts proffered by Napleton. As with the BK Cypress Log Homes case, rather than excluding the expert, the Court found his assumptions could be challenged by GM in deposition and at trial.

Following additional discovery, GM again sought summary judgment on Napleton’s claim for lost profit damages on the grounds there was a lack of evidence supporting Plaintiff’s claim that Defendant’s alleged actions caused the decline in Napleton’s sales and subsequent closure. Moreover, GM contended that neither Napleton nor its damages expert demonstrated any link between GM’s alleged actions and the calculated lost profits of “either $7.4 million or $6.1 million.” This time, the Court granted GM’s request and excluded any claim for lost profits.

The Court concludes that Napleton has not satisfied its burden to come forward with evidence showing that a jury could find to a reasonable degree of certainty the profits that Napleton lost because it had to turn customers away due to a lack of rental cars in its inventory. Further, Napleton has not satisfied its burden to come forward with evidence showing that a jury could find to a reasonable degree of certainty the profits that Napleton lost because the cars that it purportedly ordered were instead delivered to Auto Rentals.

Not only must a plaintiff establish a definitive connection between a defendant’s breach and an “inevitable and natural” loss, but the calculation of those losses must be proven with a reasonable degree of certainty. While Plaintiff won a small victory, defeating GM’s initial motion to exclude its expert based on the argument that the expert was not responsible for establishing causation, the Court’s finding that there was insufficient evidence in the record to link the calculated damages to the Defendant’s actions ultimately proved fatal to Napleton’s claim for lost profits.

Whether a company is pursuing or defending against a case involving a claim for lost profits or other economic damages, it is important to realize that the plaintiff retains the burden of proof to establish the causal link between the alleged breach and the purported damages.  A trained expert may be able to assist in establishing or challenging this link.

The Forensic and Advisory Services practice of Berkowitz Pollack Brant has experience working with commercial litigators and providing expert testimony in a variety of lost profits cases across a range of business industries.

About the Author: Scott M. Bouchner, CMA, CVA, CFE, CIRA, is a director with Berkowitz Pollack Brant’s Forensic Advisory Services practice, where he serves as a litigation consultant, expert witness, court-appointed expert and forensic investigator on a number of high-profile cases. He can be reached at the CPA firm’s Miami office as (305) 379-7000 or via email at info@bpbcpa.com.