Causation in lost profits cases: to assume or not to assume?

BVWireIssue #126-4
March 27, 2013

That is one of the most critical questions in lost profits litigation: Should the plaintiff’s expert assume causation in the damages calculations, leaving proof of the defendant’s liability to other witnesses—or should the expert specifically include information and data to support causation in the damages report? If Hamlet were a BV analyst today, he might very well answer: “It depends.” 

“There is no hard and fast rule,” according to James O’Brien, who recently presented BVR’s four-hour Advanced Workshop on Lost Profits Calculations with Robert Gray (both ParenteBeard). As a practical matter, however, it’s difficult for experts to assume causation in a vacuum, and their reports should make “some” connection between liability and damages. The more an expert has a specific skill or experience in the causation matters, the more appropriate it might be to translate this expertise directly into a report. But ultimately, the question turns on whether causation is a legal or factual issue in the case, and O’Brien advises experts to have a specific “conversation with counsel to understand what their role should be.” 

Gray agrees. “You are sort of doomed if you do and doomed if you don’t when it comes to causation.,” If you do assume causation, make sure the facts and issues are within “your sweet spot or comfort zone” or expertise, he says. If you don’t assume causation, be prepared for the opposing attorney to challenge your conclusions under the Daubert standard for lacking relevance and/or reliability.

In fact, Daubert challenges have become almost “automatic” in lost profits cases, O’Brien points out, and causation has increasingly become an area of attack. “We can't drive that home enough,” he says, how hard experts have to work to maintain their credibility and—without sufficient linkage between liability and lost profit—“how quickly it can disappear” under Daubert.

Classic best practices for calculating business losses. On April 2, join Neil Beaton (Alvarez & Marsal) and Tyler Farmer (Calfo Harrigan Leyh & Eakes) as BVR’s Online Symposium on Economic Damages continues with Lost Profits vs. Lost Business, a complete discussion of when each damages theory is appropriate (are they always mutually exclusive?) and the best methods to support each to the requisite degree of certainty.

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