There are endless uses for statistical evidence. It is great for estimating damages, providing quantitative proof of the extent to which conduct had an impact, or rebutting or cross examining an expert. But, attorney Jeffrey Dorman says, “Just as important to knowing how to use statistical evidence is knowing when not to use it.”
Speaking on a live recording for Mealey’s Litigation Conferences and Business Valuation Resources LLC, Dorman said statistical evidence is not a magic bullet that should be used in every case. “Sometimes it’s inappropriate, irrelevant or even inadmissible.”
And if anyone should know it would be Dorman. In addition to being a 30-year litigator and a partner with Freeborn & Peters LLP, he has extensive training and experience in statistical estimation, mathematical modeling, parametric estimating, system dynamics programming, and financial analysis.
As a general rule it is only necessary to use damages experts when it is necessary to estimate damages, Dorman said. In many cases there is no need to estimate, such as in cases of liquidation. When a contract is broken, the damages generally comprise the cost of covering the contract. In the case of theft, generally speaking it is the cost of the item stolen, unless it is something rare or unique. In both cases, damages can usually be computed directly, without the need for estimation, and can be presented through a fact witness, as opposed to an expert witness.
In contrast, where damages depend upon future economic variables like profits, sales, demand and cost, or future commissions, competitive harm, or patent infringement, there is no way to avoid the use of a damages expert, he said.
In between these categories you have the cusp, Dorman said, like a class action where back pay is involved and data are available to directly calculate the lost back pay of each class member. When in this situation, he said, if feasible, you should perform the direct calculation of damages; this will be better than a class-wide estimate based on regression sample because even a good approximation will miss the true value in virtually every instance. A properly chosen random sample, while methodologically acceptable, will have sampling errors.
Dorman warned: If you chose to base your damages calculation on a sample and the opposing party correctly performs a direct calculation, there will be credibility problems because “an estimate is just that – an estimate.” However, if the class members are in the tens of thousands so that it is impractical to perform a direct calculation, the use of a sample might be the only practical way to assess damages.
It is a judgment call as to whether to perform a direct calculation or estimation, he went on. You have to look at what data are needed, whether the data are available, and whether there is someone who can perform the direct calculation. You also need to examine the cost and the likelihood that the opposing party will perform a direct calculation.
Besides expenses there are other tactical reasons to consider when employing a financial expert. You need to weigh the necessity against the impact on discovery — the subject of another post.
Dorman spoke for Mealey’s Litigation Conferences and BVR along with Dr. G. William Kennedy PhD, CPA/ABV with Anders Minkler & Diehl, LLP. This is an excerpt from the session. To receive more information about how to receive a copy of the recording, the materials and transcript of the presentation, contact Customer Service at (888) BUS-VALU, (503) 291-7963 or write to me directly at firstname.lastname@example.org. I also own a phone and know how to use it: 610-312-4754.