Economics Expert’s Testimony on Operating System Failures Excluded
Posted on October 30, 2025 by Expert Witness Profiler
It all started when the Plaintiffs, Lance and Kevin McCulloch, purchased Chandler Gas and Store on May 27, 2021. They alleged that the Marathon’s mandated point-of-sale, back-office management system, and computer system (collectively, the “Required Operations System’), which controlled both the gas pumps and registers in the C-store, frequently malfunctioned.
The Plaintiffs claimed that they have lost profit in several areas due to the malfunctioning of the Marathon operations system.
Both sides filed expert-exclusion motions: Chandler Gas filed a motion to exclude the opinions of John Umbeck and Marathon filed a motion to exclude the opinions of Max McDevitt.
Economics Expert Witnesses
John R. Umbeck is a professor of economics at Purdue University who has more than 40 years of experience researching the petroleum industry and the marketing of petroleum products.
Max J. McDevitt is an economist at the consulting firm, The Fontana Group, Inc., and has “assisted with” over two dozen cases related to franchisee issues, generally in the automotive industry. He has a doctorate in economics from Boston University.
Discussion by the Court
I. Chandler Gas’s Motion to Exclude Umbeck
a. Umbeck’s Opinions
Umbeck explained that he was retained by Marathon to determine whether Chandler Gas was profitable and the amount of damages the business might have incurred due to the alleged point-of-sale problems. Based on his review of “all of the available information,” Umbeck drew eight “conclusions,” which the Court will treat as the opinions Umbeck hopes to offer at trial:
- The Chandler station was profitable when operated by Prima Investments.
- The Chandler station was profitable when operated by the McCullochs.
- The financial data shows no evidence of any significant financial harm to the station during the time of the alleged failure of the operating system.
- The actual computer problems, using Verifone data, shows no evidence of any significant loss of gasoline sales.
- The customer reviews show no evidence of customers being upset about any inconvenience caused by the computer problems.
- Based on opinions 3–5, the alleged failure of the operating system would have no significant negative impact on the expected future revenues or the market value of the business when sold.
- The business experienced a significant decrease in the volume of fuel it sold, compared to the sales when operated by Prima. However, these lost fuel sales were caused by the new retail pricing policy implemented by the McCullochs and not the alleged problems with the operating system.
- Any loss in value the business might have incurred during this time period was caused by the Plaintiffs.
b. Analysis
Opinions 1 and 2 Regarding Profitability
Chandler Gas argued Umbeck’s first two opinions should be excluded because they are not relevant.
Those opinions addressed the profitability of the station under its prior owner (Prima) and then after Chandler Gas took over. Chandler Gas claimed hundreds of thousands of dollars in damages based on alleged lost sales volume. Umbeck’s opinion that the station was profitable during the relevant period and that observed volume declines were more consistent with pricing decisions than computer outages bore directly on causation and damages.
Evidence of profitability is relevant because it provides economic context against which the jury can assess the plausibility and magnitude of Chandler Gas’s claimed losses. A central issue to this case is whether any alleged operating system outages actually caused a measurable financial impact. Evidence showing the operations before Chandler Gas assumed control and that the business remained profitable during the relevant period will assist the jury in understanding the evidence or determining a fact in issue. And although profitability alone does not disprove damages, it is probative of whether the alleged operating system issues caused significant economic harm, and the weight to be given to that evidence is a matter for the jury, not a basis for exclusion.
The Court found that Umbeck’s testimony provided relevant background and probative evidence that may assist the jury in evaluating the scale of Chandler Gas’ claimed damages.
Opinions 3 and 4 Regarding Operating System Failures
Chandler Gas contended that Umbeck failed to consider relevant evidence about the frequency and severity of operating system failures or outages, making his opinions unreliable.
To determine the impact the operating system had on sales, Umbeck looked exclusively to “a Verifone log” that included 75 problems each assigned a unique case number. He did not explain why he only looked at Verifone logs and did not consider other sources that could have demonstrated system outages.
The majority of Verifone problems were, according to Umbeck, “resolved in 5 minutes or less.” Apparently based solely on his personal experience with computer problems, Umbeck contended that customers did not leave a station and go elsewhere if a problem can be resolved within five minutes. Umbeck provided no evidentiary basis for this five-minute view of consumer behavior. Umbeck then identified the problems that “took more than 15 minutes to resolve.”
As a result, the Court refused to admit Umbeck’s opinions based on his “analysis of the actual computer problems.”
Even if Umbeck were qualified to analyze computer problems—which he is not—he has neither demonstrated any expertise in consumer behavior nor provided a basis for his assumption that a delay of less than five minutes would have no effect.
Finally, Umbeck seemed to expect the Court and factfinders to draw meaningful conclusions from a chart containing gross fuel sales revenue, C-store revenue, and total sales revenue. Umbeck presented a chart with these figures and blankly states “the table shows no significant decline in revenues from fuel sales or store sales.”
Yet there is zero explanation or analysis to show why differences the chart shows in revenue should be considered insignificant. Umbeck thus provided no reliable reasoning supporting his conclusion that no significant loss of revenues occurred over the relevant time period.
Opinion 5 Regarding Customer Reviews
Umbeck obtained 36 customer reviews through Google Maps from the relevant period and concluded that there is no evidence of customers being upset about the computer problems, and thus “no evidence of a significant loss of business due to the alleged computer problems.”
The Court found that Umbeck’s conclusion did not meet the Daubert standard. Even assuming the accuracy of the customer reviews, the Court determined that Umbeck had provided no reliable method for extrapolating economic harm from qualitative anecdotal feedback. His methodology appeared to consist of reviewing a relatively arbitrary collection of consumer reviews of Chandler Gas, and nothing more. The Court further found that nothing in Umbeck’s background qualified him to perform a qualitative analysis of customer reviews obtained through his own unexplained research on Google Maps.
Opinion 6
Opinion 6 relied entirely on excluded Opinions 3 through 5, and therefore depends on unreliable and inadmissible testimony. Although inadmissible evidence may be considered in formulating expert opinions, Umbeck may not rely on evidence that itself is unreliable.
Umbeck’s conclusion depends substantially on Opinions 3-5, which have been excluded as methodologically unreliable. Because the foundation for Opinion 6 is unreliable and that opinion is otherwise broad and unsupported by independent valuation methodology, the Court excluded it.
Opinion 7 Regarding the Causation of Lost Profits
Umbeck’s opinion 7 concluded that any decrease in fuel sales volume during the relevant period was caused by Chandler Gas’s pricing decisions and not the alleged operating system failures. Chandler Gas argued that this opinion—which is based primarily on price differentials between Chandler Gas and the nearby Circle K station—should be excluded because it is “flawed and unreliable” and prejudicial.
To provide support for Opinion 7, Umbeck used data on the station’s average monthly retail prices before, during, and after Chandler Gas’s ownership. Umbeck first compared Chandler Gas’s prices with those of its eight closest competitors, which seems to show nearly identical pricing between 2018 and 2024. But then Umbeck provided stronger support for his conclusions. He demonstrated a gradual decline in monthly average gasoline sales for Chandler Gas and a gradual increase in the differential between the retail price offered by Chandler Gas and the wholesale price at which it purchased the gasoline.
Finally, Umbeck compared the monthly price of Chandler Gas with a competitor Circle K station just under one mile away. Umbeck’s data showed that Chandler Gas’s average monthly retail price was often a few cents below Circle K’s price for the last half of 2021, but several cents higher than Circle K’s in 2022 (and even up to more than fifteen cents higher in November 2022). In the same chart, Umbeck also showed a mostly-gradual decline in the average monthly volume of gasoline sold by Chandler Gas.
From this data, Umbeck concluded the retail prices set by Chandler Gas—and not the computer problems—caused the volume of gasoline sales to drop. This testimony is relevant to causation and damages because it offers an alternative explanation for the decline in sales volume, which is a key contested issue in the case.
Opinion 8 Regarding Plaintiffs Having Caused All Loss in Value
Umbeck’s opinion 8 stated that “any loss in value the business might have
incurred during this time period was caused by the Plaintiffs.”
Unlike Umbeck’s pricing analysis in opinion 7, Umbeck did not identify a valuation methodology or provide an evidentiary basis for this opinion. Umbeck did not perform a discounted cash flow analysis, comparable sales analysis, or any other recognized valuation technique. Nor did he provide an economic model linking the alleged causes (e.g., pricing decisions) to any measurable diminution in business value. In fact, Umbeck’s report included essentially no discussion or reasoning to support this opinion; there was not a single sentence about the business value or how Chandler Gas might have caused any loss in value.
The Court found this opinion too unreliable to satisfy the necessary standard because it did not have an adequate analytical or methodological basis.
Rebuttal Report
Chandler Gas also objected to portions of Umbeck’s rebuttal report, arguing that Umbeck impermissibly exceeded the scope of proper rebuttal. Accordingly, the Court declared that Umbeck would be permitted to offer rebuttal testimony only to the extent it directly responded to or contradicted McDevitt’s opinions.
II. Marathon’s Motion to Exclude McDevitt
McDevitt intended to introduce the following opinions at trial:
- Chandler Gas lost an estimated 907,708 gallons of fuel sales between June 2021 and July 2024
- Chandler Gas lost an estimated $1,731,972 in C-Store sales between June 2021 and July 2024
- Chandler Gas lost an estimated $333,040 in fuel profits between June 2021 and July 2024
- Chandler Gas lost an estimated $388,532 in C-Store profits between June 2021 and July 2024
- Chandler Gas lost an estimated $721,572 in total profits (combined fuel and CStore) between June 2021 and July 2024
- Chandler Gas’s estimated loss of value on the sale of business assets was $784,604
b. Analysis
Marathon challenged McDevitt’s qualifications on the basis he lacked specialized experience in retail gasoline markets and the petroleum industry.
However, the Court found that McDevitt is not going beyond his specialized field of applied economics. Though he did not appear to have extensive experience in the petroleum industry, he did have the necessary background to conduct damages modeling and offer opinions on lost profits, sales, and value.
Marathon also challenged McDevitt’s methodology. Marathon contended that McDevitt’s damages opinions were based on biased assumptions, particularly that all lost sales were caused by operating system glitches rather than price increases or competition. The Court found, however, that McDevitt’s clearly stated assumptions did not extend into territory that would warrant excluding his testimony. McDevitt had reviewed historical data, incorporated alternative pricing scenarios, and based his damage calculations on the station’s actual financial records.
The record indicated at least some basis for McDevitt’s assumptions that the operating system malfunctions resulted in declined sales and values.
Marathon further asserted that McDevitt ignored basic principles of economics like the law of demand. Though Marathon may contend that McDevitt’s analyses were flawed because Chandler Gas raised its prices above competitors, this argument did not render McDevitt’s testimony inadmissible. He did not rely on unsupported speculation and the fact that he did not conduct independent causation analysis is no issue.
Lastly, Marathon argued that McDevitt’s opinions should be excluded because the opinions would mislead the jury and cause unfair prejudice.
The Court held that McDevitt’s calculation of damages has probative value given the issues at hand, and any risk of prejudice or confusion can be mitigated through cross-examination, the presentation of Umbeck’s competing analysis, and appropriate jury instructions.
Held
- The Court granted in part and denied in part Chandler Gas’ motion to exclude the opinions of John Umbeck.
- The Court denied Marathon’s motion to exclude the opinions of Max McDevitt.
Key Takeaway:
Expert testimony that helps the jury evaluate competing causal explanations for damages claims is within the scope of Rule 702.
Economic experts like Umbeck may rely on historical price data and market comparisons to form opinions about the effect of pricing on sales. Here, Umbeck presents data showing evidence of patterns between price changes and volume shifts. Since the analysis is informed by Umbeck’s background as an economist and relevant experience within the petroleum industry, it sufficiently satisfies the Daubert standard.
Case Details:
| Case Caption: | Chandler Gas & Store Inc. V. Treasure Franchise Co. LLC |
| Docket Number: | 2:23cv400 |
| Court Name: | United States District Court for the District of Arizona |
| Order Date: | October 29, 2025 |
