Destruction of financial evidence trips up guilty party's own experts
Bruno v. Bozzuto's, Inc., 2015 U.S. Dist. LEXIS 156339 (Nov. 19, 2015)
As a damages expert, what do you do when your own client has destroyed vital financial information? Two highly educated finance professionals working on a contract case solved this dilemma by relying exclusively on the opposing side's sales projections, only to see their analysis buckle under a Daubert challenge.
Trouble started before the litigation when one of the plaintiffs, an experienced CPA, destroyed all financial records related to her business, a small supermarket chain. She and her husband, the co-plaintiff, soon thereafter sued the defendant wholesale distributor over the alleged breach of a supply agreement.
The plaintiffs two experts—one a J.D., MBA, and the other a Ph.D., MBA—calculated losses by way of a discounted cash flow (DCF) analysis. Lacking reliable data from the plaintiffs, they used one of the defendant's sales projections from just prior to the litigation for their cash flow calculation. However, according to the defendant, it routinely prepared this type of projections for internal use, to decide whether or not to enter into an agreement with a third party. But it did not intend the projections to represent sales forecasts or to undergird a damages calculation. In fact, even before the plaintiffs' experts submitted their first report, the defendant had adjusted its projections downward, after finding out the plaintiffs' sales were at least $30,000 less per week than prior information had suggested. A subsequent restoration of some of the actual sales data confirmed the lower sales figures.
Although the plaintiffs' experts were aware of the downward revision, they declined to adjust their calculations in a subsequent expert report. They also testified that they did not verify any of the information, reasoning that, since the numbers came from the defendant, they were per se reliable.
The defendant successfully claimed the entire damages testimony was inadmissible under Daubert.
Read about the court's findings here.