Financial experts are often called on to help clients determine economic damages in commercial litigation. In a recent damages-only trial for a quantum meruit case, the court tackled a slew of motions aimed at limiting the testimony of opposing damages experts. This article summarizes the court’s rulings, which shed valuable light on how attorneys and experts should approach such cases.

Case of dueling experts

In 2014, LCT Capital (LCT) helped NGL Energy Partners (NGL) acquire a refined petroleum products distributor. The transaction generated $500 million in value for NGL, more than twice the price NGL paid for the acquisition. But the parties never reached an agreement on LCT’s investment banking fees.

In 2015, LCT sued NGL for breach of contract, fraud and the quasi-contractual remedies of unjust enrichment and quantum meruit. After a first trial, post-trial decisions and an interlocutory appeal, only the quantum meruit claim remained for the new trial on remand. As in the first trial, NGL conceded liability under quantum meruit, leaving only the damages issue.

Both parties raised challenges to their opponent’s damages expert’s testimony. The court considered two Daubert motions to exclude and five motions in limine to exclude or admit various evidence, testimony and argument at trial.

Defense’s rebuttal expert

The Superior Court of Delaware first addressed the plaintiff’s arguments against the defendant’s rebuttal expert. The plaintiff claimed that the expert exceeded her scope as a rebuttal expert, offered an unreliable opinion and made an impermissible credibility determination regarding the plaintiff’s CEO. However, the court denied the motion to exclude her opinions.

It rejected the notion that the expert exceeded her proper scope, noting that rebuttal witnesses may use new methodologies to rebut or critique an opposing expert. Moreover, if an affirmative expert claims an absence of data, a rebuttal expert can attempt to rebut that claim by proving the existence and reliability of such data. The court also disagreed that the expert’s opinion was unreliable because she didn’t consider and assign greater weight to certain evidence. It found the allegations that she didn’t consider the information “demonstrably false,” citing a section of her report.

Finally, the court found the expert didn’t make a credibility determination on the CEO. Although the expert disagreed with the CEO’s valuation of his services, she didn’t accuse him of being untruthful.

Plaintiff’s expert

The court’s rulings on the testimony of the plaintiff’s expert weren’t as favorable as they were for the rebuttal expert. For example, the court agreed with the defense that the plaintiff’s expert’s opinions violated the law of the case and relevant case law.

The defense also argued that the plaintiff’s expert didn’t use reliable methodology to form his opinions because he impermissibly engaged in ipse dixit, and his opinions violated the law of the case. The term “ipse dixit” represents the general prohibition of opinions supported only by the expert’s qualifications that can’t reasonably be traced to other authority or proof. A court doesn’t need to admit evidence that’s connected to existing data only by the expert’s ipse dixit. It may conclude that there’s “simply too great an analytical gap between the data and the opinion.”

The court’s findings on the five ipse dixit opinions from the plaintiff’s expert were a mixed bag. It excluded two — in which he opined that a floor of $43.8 million (22% of deal price) is reasonable compensation for LCT’s services — because he couldn’t tie them to his prior experience as an investment banker. Rather, they were derived from a proposed fee arrangement. It allowed (but in some cases limited) the expert’s other opinions.

Jury gets the last word

Ultimately, the jury awarded the plaintiff $36 million for its services. It’s worth noting that figure is significantly less than the “floor” provided by the plaintiff’s expert.

LCT Capital sheds valuable light on how experts and attorneys who use financial experts to determine damages should approach similar cases. It also highlights potential pitfalls to avoid.

Court gives value creation damages theory a second look

The defendants in LCT Capital challenged the admissibility of evidence or testimony related to the value creation theory of quantum meruit damages. This theory incorporates the post-acquisition value that the plaintiff’s services added to the defendant’s acquisition. The court initially precluded the plaintiff’s expert from testifying to damages calculations based on the theory. It found that the methodology was contrary to the law of the case and relevant case law. The court noted that, under Delaware law, quantum meruit damages are generally based on the value of the services provided, not the value of the benefit received.

The court subsequently modified its order regarding the value creation theory. It explained that the appropriateness of a flat fee wasn’t a foregone conclusion, given the specialized nature of the services. And evidence suggested that the value of the plaintiff’s services couldn’t be reduced to such a fee. In fairness, the court allowed the jury to consider the increased value the plaintiff added to the acquisition when awarding damages. If the jury found the plaintiff’s efforts were “unique, extraordinary and critical,” it could permissibly place a value on those efforts.

The court concluded that the sole goal of the services was to increase the deal’s value for the defendant. It follows that the plaintiff shouldn’t be precluded from presenting evidence or argument that the reasonable value of its services can’t be determined without understanding the value it added to the acquisition.

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LCT Capital, LLC v. NGL Energy Partners LP, No. N15C-08-109 MAA (Del. Superior Ct. Dec. 22, 2022).