Estimating economic damages is rarely straightforward. If a damages expert’s testimony seems simplistic, it could signal a red flag about the expert’s qualifications or methods. This article summarizes a recent federal district court case where an automotive parts manufacturer learned this lesson the hard way.

Motobilt, Inc. v. Bystronic, Inc., 2024 U.S. Dist. LEXIS 2667 (N.D. Ill. January 5, 2024).

What’s the dispute?

Motobilt, Inc. v. Bystronic, Inc. involved a breach of warranty claim. The plaintiff sought to recover damages it allegedly suffered when purchased equipment failed to function as warranted. The plaintiff claimed that it bought four items designed to work together to automate the process of metal sheet-cutting. However, two automation components failed to operate as warranted by the defendant. The plaintiff claimed that the defendant was unable or unwilling to remedy the problems for more than a year and a half. As a result, the equipment didn’t reliably function as an automated system.

The plaintiff’s expert offered two damages models. The first assumed that the equipment was 60% less productive in manual loading operation (when the two parts didn’t function as warranted) than it was in fully automated operation. Based on this productivity loss, the expert estimated that the equipment’s value at the time of purchase was 60% less than the purchase price.

The second model was based on a blog post on the defendant’s website, which stated that adding automation can improve average efficiency by 30%. So, the expert opined that the equipment’s value when purchased was 30% less than the price paid.

Was the expert qualified?

The defendant moved to exclude the opinion provided by the plaintiff’s expert — and, ultimately, neither of the expert’s models survived Daubert scrutiny. The U.S. District Court for the Northern District of Illinois, Eastern Division, noted that the expert was a certified fraud examiner whose expertise primarily was in fraud prevention, risk management and compliance. He had no work experience, education or training in valuing equipment.

However, the plaintiff contended that he didn’t need a background as an expert in laser cutting systems to qualify as a damages expert. It argued that damages experts can rely on other experts when their testimony touches on areas outside of their expertise. The court disagreed, pointing out that the proponent of his testimony must show that there’s something in his background that qualified him to opine about the specific subject of his testimony.

The core of the expert’s damages theory was his valuation of the equipment, yet he had no experience valuing industrial equipment. Because the plaintiff offered nothing to substantiate his expertise in this area, it failed to prove that its expert was qualified to offer his damages opinions.

Were the expert’s models reliable?

Additionally, the court found that, even if the expert were qualified, his damages model lacked any of the usual indicators of reliability. For example, the expert testified that he didn’t rely on any treatises, manuals, textbooks or authorities when developing his model. He had never used the methodology in another case and wasn’t aware of any court that had ever accepted his models.

The plaintiff argued that the expert applied accounting and economic principles to assess the equipment’s value. But the court pointed out that his report didn’t identify any such principles or explain how they supported his models. Moreover, his “unprecedented approach” suffered from “obvious analytical flaws.” In particular, the court highlighted his failure to consider the equipment’s expected service life when determining the extent to which its total value was impaired by its initial failure to perform as warranted. The court said, “Even a layperson surely understands that the price [the plaintiff] paid for the equipment reflects its value over its useful life.”

The defendant repaired the automation components approximately 20 months after installation. From that point through the date of the expert’s deposition, the equipment functioned as warranted. Thus, the reduced value due to the initial failure to perform should have been amortized over the equipment’s service life. Neither of the expert’s models accounted for the time that the equipment functioned as warranted. Both assessed the equipment’s value as if its productivity were permanently impaired, resulting in a “grossly inflated discount.”

Tread carefully

The court in Motobilt ultimately concluded that the expert’s damages opinions were inadmissible. Don’t make the same mistake — carefully vet your experts to ensure they’re qualified and use reliable methods.

For more information, contact us today.