Accounting Expert Witness’ Testimony Excluded Because He Makes No Effort to Distinguish Lost Profit Damages
Posted on December 20, 2024 by Expert Witness Profiler
It all started when GE and X-Ray contracted for the acquisition, sale and purchase of certain equipment and services required to outfit a nuclear radiopharmaceutical laboratory—the first of its kind in Jamaica.
X-Ray later accused GE Entities of breaching their duties of care to X-Ray and breaching various components of the operative agreement– the International Finance and Sales Agreement (“IFSA”) as well as certain warranties.
X-Ray has disclosed a damages expert, Andre Sutherland, to testify primarily as to lost profits, and also as to “remediation costs” and “acquisition costs.”
On April 22, 2021, the Court granted GE’s motion to strike from X-Ray’s pleadings its request for lost profits damages, and found that lost profits damages were barred by the parties’ principal agreement, the IFSA. Accordingly, GE now seeks to strike Sutherland on grounds that his testimony would not be relevant because it pertains primarily to X-Ray’s stricken, lost profits damages. Separately, GE argued that Sutherland’s testimony, even if it survives the lost profits argument, is not the product of reliable principles and methods.
Accounting Expert Witness
Andre O. Sutherland is a Fellow Certified Chartered Accountant (FCCA), by the Association of Certified Chartered Accountants a Chartered Business Valuator by the CBV Institute (formerly the Canadian Institute of Chartered Business Valuators and an Accredited Senior Appraiser (ASA) by the American Society of Appraisers. He holds 14 years of professional experience including more than ten years of valuation experience.
Discussion by the Court
Lost Profits
Sutherland’s opinion centered on X-Ray’s lost profits due to its laboratory and equipment allegedly malfunctioning. To calculate those lost profits, Sutherland took X-Ray’s 2013 business plan; determined the projected customers over a six-year period; calculated the cost per PET/CT scan to determine revenues; subtracted expenses from those revenues; and compared those projected revenues to the actual revenues. Sutherland then generated two final numbers: one calculated as the most-likely scenario, and one calculated with a 50% weight for a worst-case scenario.
GE raised a myriad of alleged issues with Sutherland’s report. These include arguments that: Sutherland’s report relies entirely on X-Ray’s own 2013 business plan; he did not know who created that business plan and he did no independent market research about relevant market rates or industry costs.
The Court held that Sutherland failed to distinguish (1) which lost profits damages were caused by negligence (let alone each distinct and independent theory of negligence that X-Ray alleges) versus (2) which lost profits damages were caused by breaches of contract, breaches of warranty, and/or other factors.
Moreover, Sutherland’s report does not account for what portion of X-Ray’s lost profits are attributable to GE’s alleged negligence, as compared to GE’s alleged contract breaches, as compared to factors entirely unrelated to GE (e.g., a competitor, COVID-19 regulations, or internal factors).
It is noteworthy that X-Ray does not present any compelling authority or argument to explain why Sutherland’s opinion would still be reliable and helpful notwithstanding the report’s failure to divvy up blame.
Remediation Costs and Acquisition Costs
GE sought to exclude Sutherland’s anticipated testimony regarding acquisition and remediation costs, as GE believes such testimony does not required specialized knowledge. Remediation costs are, according to GE, the combined price of the equipment X-Ray purchased from GE.
The Court held that no expertise is required for X-Ray to explain to the trier of fact its purchase price for equipment (i.e., its “acquisition costs”). Indeed, to add up X-Ray’s composite purchase price, there is no need to affirmatively “exclude expenses which are unrelated” to that cost. Rather, X-Ray’s lay witnesses and lawyers can simply identify each purchase price, add them up, and present the final number.
As to remediation costs, GE argued that Sutherland simply relayed a number ($208,000.00) which “Management indicated” was incurred “to rectify the Quality Control Lab.” GE argued that expert testimony is not required because Sutherland did not calculate this amount, break down this amount, configure this amount, or even verify this amount; rather, he simply repeated a number that “management” provided to him.
X-Ray responded that “Sutherland extracted and articulated, only those costs incurred by X-Ray which accounted for costs of the equipment and costs incurred to attempt to remediate the equipment or create work-arounds.”
But X-Ray cited to no portion of Sutherland’s report in which he “extract[s]” remediation costs from any portion of the record that he was provided. To the contrary, Sutherland testified in his deposition that “[a]ccording to management, they did in fact incur at least $208,000.00 on remediation expenses.”
The Court held that GE has thus presented uncontroverted evidence that Sutherland’s testimony as to remediation costs imports no expertise, but instead is a recitation of a figure provided by management.
Held
The Court granted GE’s motion to exclude the testimony of Plaintiff’s expert Andre Sutherland. He cannot testify at trial as to lost profits, as to “acquisition costs,” or as to “remediation costs.”
Key Takeaways:
- Sutherland’s testimony is fatally flawed and cannot be resurrected because he not present any basis to, at minimum, distinguish lost profit damages that indisputably arise from the contract.
- Sutherland presents a report that presents lost profits figures that apparently factor in: GE’s negligence; GE’s breaches of contract and numerous other factors and considerations. In that report, Sutherland makes no effort to isolate what portion of the lost profits were caused by GE’s negligence. And because X-Ray’s surviving negligence claims are the only claims for which X-Ray now seeks lost profits, Sutherland’s testimony is unreliable and unhelpful to a trier of fact who seeks to determine what damages were caused by GE’s negligence.
- The Court held that no expertise is required for X-Ray to explain to the trier of fact its purchase price for equipment (i.e., its “acquisition costs”). Thus, on this score, Sutherland’s calculation constitutes “simple arithmetic” which “is not beyond the understanding of the average lay person and therefore would not help the trier of fact.”
Case Details:
| Case Caption: | X-Ray Diagnostics And Ultrasound Consultants Limited V. General Electric Company Et Al |
| Docket Number: | 1:20cv24492 |
| Court: | United States District Court, Florida Southern |
| Order Date: | December 6, 2024 |
