The Expert Witness Exchange: Car Rentals, $16 Million
and an Expert Witness
While there are hundreds of Daubert decisions issued every week, only a few go a long way in shaping the way experts are screened by judges in the future. And even fewer times, a multimillion-dollar verdict is hinged solely on the expert witness testimony! In this article, the author discusses the district and appellate court decision in Alaska Rent-A-Car v. Avis Budget Group.
While there are hundreds of Daubert decisions issued every week, only a few go a long way in shaping the way experts are screened by judges in the future. And even fewer times, a multimillion-dollar verdict is hinged solely on the expert witness testimony!
This is the story of a car rental franchise dispute and Patrick L. Anderson, an accounting expert witness who was at the center of this case which saw the Plaintiff being awarded $16 million in damages.
The case was Alaska Rent-A-Car v. Avis Budget Group. Alaska Rent-A-Car (ARAC) was an Avis franchisee who sued Avis for violating a prior settlement agreement. The settlement agreement promised Avis licensees that any rental car companies acquired by Avis (the Defendant) in the future would maintain separate sales, marketing, and reservation operations.
The settlement agreement protected Avis licensees from the risk of Avis using its personnel to steer customers and potential customers towards another brand. Licensees would typically only rent Avis cars, but Avis might own a competitor operating in the same locality under a different name. Avis bought Budget Rent-A-Car out of bankruptcy in 2002. It then restructured its central operations, putting the Avis and Budget marketing teams under unified management, creating a single team to answer calls to both Avis and Budget reservation lines, and combining the Avis and Budget national corporate sales forces. The obvious threat from these actions to Avis’s licensees was that Budget would bleed off some of their customers and potential customers. People typically rent cars online or by telephone from a national site or 800 number, and governments and big corporations typically negotiate with the national entity because they typically rent cars for use away from home.
ARAC sued Avis claiming that Avis had indeed breached the settlement agreement, causing Alaska business to be switched to Budget Rent-A-Car, its local competitor. The district court granted a partial summary judgment, establishing that ARAC was a party to the settlement agreement, and that Avis had breached the agreement by using the same personnel to sell and market both Avis and Budget cars. Damages were left for jury trial. The jury returned a verdict in favor of ARAC for $16 million.
At trial, the Plaintiff designated Patrick L. Anderson as its damages expert. Avis moved to exclude Anderson‚Äôs testimony on the grounds that it was neither reliable nor would assist the trier of fact. In opposition to the motion to exclude, the Plaintiff argued that Anderson gathered extensive data on the rental car industry, ARAC’s finances, and Alaska’s economy, which he sourced and summarized in his report. He then applied a standard methodology‚ÄĒreferred to as the ‚ÄúIncome approach‚ÄĚ or ‚Äúdiscounted cash flow‚ÄĚ (DCF) methodology‚ÄĒto assess the damages resulting from Cendant’s breach of the settlement agreement. The Plaintiff argued that this methodology produces an expert opinion on loss of business value or lost profits by: 1) estimating the future income or business value that a company will generate following the breach; 2) estimating the income or value that the company would have generated without the breach; 3) comparing these totals, after taking into account any benefits realized or costs avoided as a result of the breach; and 4) discounting the lost future income to present value.
During the oral arguments on the motion to exclude, the Judge even made a reference to Harry Truman‚Äôs famous request for a one-armed economist, having been tired of exponents of dismal science proclaiming ‚ÄúOn the one hand, this‚ÄĚ and ‚ÄúOn the other hand, that‚ÄĚ and noted, ‚Äúit appears to me Mr. Anderson has both arms. Any concern I had before have been allayed by what I have heard in Mr. Anderson’s testimony today. I think there is enough underlying data and sufficient causal connection to allow his testimony.‚ÄĚ
After deliberating for about two hours, the jury awarded $16 million dollars to the Plaintiff. The Defendant appealed.
Arguing for a Standard Higher than Daubert
Avis opened its appellate brief by arguing, ‚ÄúIf ever there were a case that underscored the danger of allowing an expert to present a fanciful damages theory to a jury, this is it.‚ÄĚ It went on to argue that the district court erred by upholding the $16 million damages award based on fundamentally flawed expert testimony and even if it met the standard for admissibility, it certainly did not meet the heightened ‚Äúreasonable certainty‚ÄĚ standard for proving lost-profits damages under New York law.
ARAC responded that in accordance with the district court‚Äôs order requiring that the factual bases for the expert’s opinion be presented before any opinion testimony could be offered, Anderson first testified about his qualifications, the facts that he gathered and relied on, his methodology, and the key assumptions that he used in reaching an expert opinion on whether ARAC had suffered damages, and if so, how much. ARAC argued that Anderson‚Äôs qualifications were undisputed and he used the Income Approach to determine the present value of ARAC, and to estimate the additional profits it would have earned if Avis had not breached the settlement agreement.
ARAC also argued that the Income Approach is a standard methodology, used in business as well as litigation and standards governing this methodology are established by government and professional organizations.
The real question in this case seems to be the extent of gatekeeping analysis a district court is supposed to conduct at the time of assessing an expert‚Äôs testimony. The district court, in this case, exercised its discretion in a way that recognized its function as gate-keeper and protected the jury’s role as fact-finder. On the contrary, Avis wanted the district court to apply the heightened ‚Äúreasonable certainty‚ÄĚ standard.
Daubert Sets Flexible Requirements
The 9th Circuit noted, ‚ÄúThe task, for both sides, was to figure out how much business and how much profit Alaska Rent-A-Car had lost on account of Avis’s breach of the settlement agreement.‚ÄĚ Keeping this task in mind, the 9th Circuit looked at Anderson‚Äôs testimony, Avis‚Äô challenges to it, and the district court‚Äôs treatment of the challenge.
It noted that all of Avis‚Äô challenges to Anderson‚Äôs testimony were colorable, but none went to admissibility. Instead, they amounted to impeachment. Citing the Supreme Court in Kumho Tire, the Court noted, ‚ÄúThe Daubert reliability requirement is flexible and Daubert‘s list of specific factors neither necessarily nor exclusively applies to all experts or in every case.‚ÄĚ Basically, the judge is supposed to screen the jury from unreliable nonsense opinions, but not exclude opinions merely because they are impeachable. The district court is not tasked with deciding whether the expert is right or wrong, just whether his testimony has substance such that it would be helpful to a jury.
The Court held, ‚ÄúGiven that the judge is ‚Äėa gatekeeper, not a fact finder,‚Äô the gate could not be closed to this relevant opinion offered with sufficient foundation by one qualified to give it.‚ÄĚ
The Damages Were Certain under New York Law
The jury had returned a verdict of $16 million, slightly more than the $15,787,182 in damages that Anderson calculated. Avis‚Äô expert had not offered any number to the jury but just critiques of the other expert’s assumptions and calculations, with some numbers differing from his for-component parts.
The 9th Circuit noted that Avis thus presented the case to the jury as a $16 million or nothing choice. On the certainty of damages standard under New York law, the 9th Circuit held that ‚ÄúThe test [for review] is whether the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to that of the jury.‚ÄĚ The Court noted that New York law does not require that damages be determined with mathematical precision. It requires only that damages be capable of measurement based upon reliable factors without undue speculation.
Mr. Anderson, talking to the Expert Witness Chronicle, noted that no matter how well qualified an expert you are or how sound your methodology is, a Daubert challenge has become the order of the day for expert witnesses. He advised that no matter how tempting it may seem to exaggerate the amount of damages to support the position of your retaining party, both attorneys and experts should refrain from doing so and provide an opinion which is the logical outcome of applying their scientifically reliable methodology to the facts of the case.
We do not know if Avis would challenge the 9th Circuit opinion in the Supreme Court and whether the outcome will change, if it does. Until then, this decision will certainly go a long way in guiding district court judges as to how they should decide on admitting or excluding the testimony of an expert witness.
This article was previously published in the Expert Witness Chronical, Vol. 2, Issue 2, April 2013 and is reprinted here with permission.
Ashish Arun is the Principal and Director of Research and Operations at Expert Witness Profiler, LLC. An attorney with several years of experience in the expert witness industry, Mr. Arun is the founder of Expert Witness Guru and the Editor-in-Chief of Expert Witness Chronicle‚ĄĘ, the #1 online magazine on expert witness testimony.
Ashish Arun can be contacted at (860) 206-5012 or by e-mail to firstname.lastname@example.org.