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Daubert and lost-profits testimony: when lost profits are an issue, both parties' experts will face the judicial 'gatekeeper.' Study the case law to understand who will be admitted - and who will be stranded outside.

Article Excerpt
The issue of lost profits can arise in a wide range of contract and tort cases. When the law allows for such recovery, the plaintiff must prove something that never came to be: the profits the plaintiff would have earned but for the defendant's breach or wrongful conduct. Unless the plaintiff's expert has the right expertise and applies an appropriate methodology to estimate lost profits, his or her opinion is subject to attack as unfounded, irrelevant, or unreliable, based on Daubert v. Merrell Dow Pharmaceuticals, Inc., (1) and its progeny.

In the 12 years since the Daubert decision, a sufficient body of case law has developed to provide precedent for admission and exclusion of lost-profits expert testimony and to expose traps for the unwary.

Under Daubert and its progeny (most notably General Electric Co. v. Joiner (2) and Kumho Tire Co. v. Carmichael (3)), expert testimony is admissible if the expert is qualified to testify on the topic at issue, the testimony will assist the trier of fact, and the expert's methodology is sufficiently reliable. To ensure a proper foundation, the trial court acts as a "gatekeeper," screening expert testimony to determine if it is relevant and reliable. Expert testimony must be excluded if the reasoning or methodology underlying the opinion is scientifically invalid, or if the methodology cannot be properly applied to the facts.

As Justice Stephen Breyer pointed out in his concurring opinion in Joiner, this gatekeeper function sometimes requires judges to make "subtle and sophisticated determinations about scientific methodology and its relation to the conclusions an expert witness seeks to offer ... Yet ... judges are not scientists and do not have scientific training that can facilitate the making of such decisions." (4)

In contract cases, the plaintiff has the burden of proving that the profits lost were contemplated by the parties when they entered into their contract. In tort cases, the plaintiff's burden is to show that the loss of the profits was foreseeable from the defendant's wrongful conduct and that the defendant's actions caused the profits to be lost.

Lost profits must be proven with reasonable certainty and cannot be too speculative or remote to be computed reliably. The amount of profits lost need not be proven with mathematical precision; rather, evidence is sufficient if it enables the fact-finder to make a fair and reasonable finding of the amount.

Whether the plaintiff sustains this burden is crucial, especially since the standard of review of the district court's decision to admit or exclude expert scientific evidence is abuse of discretion, an issue addressed in Joiner but not Daubert. In Joiner, the Supreme Court rejected...

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