Due to Expert’s Use of Insufficient Facts or Data, Fifth Circuit Precludes Expert’s Opinion on Lost Profit Damages

Dugan Russell v. Allianz Life Insurance Company of North America, et al., No. 3:13-cv-00030

United States District Court, N.D. Mississippi, Oxford Division: Decided January 8, 2015

Dugan Russell (“Russell”) sought to rely on expert testimony to provide a calculation of profits he allegedly lost caused by the termination of his Agent Agreement with Allianz Life Insurance Company of North America (“Allianz”). Allianz filed a Daubert[1] motion seeking to exclude the expert’s opinion as speculative and unreliable.

The expert performed a forensic accounting analysis of Russell’s alleged lost profits over a period of 10 years after the termination. To calculate lost profits, the expert: “(1) analyzed Russell’s ‘historical gross revenues from commissions, the related business expenses and resulting net profits’ for the period 2005-2012; (2) determined that Russell had a work-life expectancy of ten years; (3) used data reporting the sales of annuities on a national level from the Insured Retirement Institute (“IRI”) as an industry yard stick to project Russell’s future annual gross commission income; and (4) valued Russell’s ‘book of business’ at 1.5 times the projected gross commission income for the year 2020.” The expert opined that Russell lost profits of $486,313 caused by the termination, $151,700 of which was attributable to the value and presumed sale of Russell’s book of business in the year 2021.

Based on the standards applied by the Fifth Circuit in Viterbo v. Dow Chemical Co., 826 F.2d 420 (5th Cir. 1987), the court determined that the facts relied upon by the expert – that Russell lost his entire client list as a result of the termination – rendered his opinion on the sale of Russell’s book of business in the year 2021 fundamentally unsupported and of no assistance to the jury. In Viterbo, the Fifth Circuit provided the following guidance regarding a trial court’s inquiry into the facts or data underlying an expert’s opinion:

As a general rule, questions relating to the bases and sources of an expert’s opinion affect the weight to be assigned that opinion rather than its admissibility and should be left for the jury’s consideration. In some cases, however, the source upon which an expert’s opinion relies is of such little weight that the jury should not be permitted to receive that opinion. Expert opinion testimony falls into this category when that testimony would not actually assist the jury in arriving at an intelligent and sound verdict.

[Id. at 422.]

Disregarding the undisputed and known fact that Russell continued to sell insurance products after the termination to individuals on his client list through other insurance carriers, the expert improperly relied upon Russell’s testimony that his customer base ceased to exist after the termination. Since the data underlying the expert’s opinion was not only unsupported, but contrary to undisputed facts, the expert’s opinion on the value of Russell’s book of business in 2021 was precluded by the court.

In calculating lost profits, the expert also applied a 10-year work-life expectancy at the time of the termination. Citing the standards applied by the Fifth Circuit in Madore v. Ingram Tank Ships, Inc., 732 F.2d 475 (5th Cir. 1984), the court concluded the expert improperly relied on Russell’s testimony regarding his intention to continue working after the termination and his own personal observations of Russell, a 70-year old man, that he physically appeared to be in good health.

In Madore, the Fifth Circuit held “that a plaintiff’s work-life expectancy should be based on statistical averages, such as those provided by the Department of Labor’s work-life expectancy tables.” The court in Madore explained as follows:

The phrase “work-life expectancy” literally reflects its meaning: the average number of years that a person of a certain age will both live and work. Such an average is not conclusive. It may be shown by evidence that a particular person, by virtue of his health or occupation or other factors, is likely to live and work a longer, or shorter, period than the average. Absent such evidence, however, computations should be based on the statistical average.

[Id. at 478.]

In Madore, the Fifth Circuit concluded that “because no particularized evidence existed to contradict the Department of Labor statistical average assigning the plaintiff a work-life expectancy of fewer years, the district court erred in concluding the plaintiff could be anticipated to work beyond the statistical average.” Applying the holding of Madore, the Fifth Circuit held in Naquin v. Elevating Boats, LLC, No. 10-4320, 2012 WL 1664257 (E.D. La. May 11, 2012) that a plaintiff’s self-serving testimony that he intends to work beyond the statistical average is insufficient.

Relying only on Russell’s testimony that he intends to continue working and the expert’s own personal observations of Russell’s physical health, the court ruled that the expert’s use of a 10-year work-life expectancy was improper.

Based on the above, the court precluded the expert’s opinion on lost profit damages finding that it did not meet the reliability requirements of Rule 702 of the Federal Rules of Evidence, including Rule 702(b), which requires an expert’s testimony to be based on sufficient facts or data.

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[1] Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).