"Reasonable Certainty" Remains Uncertain
By Neil Steinkamp and Regina M. Alter – January 21, 2014
Many legal and financial practitioners are facing increasing challenges on whether alleged damages have been proven with reasonable certainty. This article explores the theoretical and practical considerations of reasonable certainty of lost profits as a measure of damages.
Professional literature, court opinions, rules of evidence, and other bodies of knowledge and works of law often use the phrase “reasonable certainty” when discussing damages. However, the threshold for reasonable certainty remains ambiguous. It is important to note that this discussion does not define a specific checklist, mathematical formula, or mechanical manner of deducing whether damages opined by the expert are a reasonable certainty. No such specific mechanism exists that can be applied to all matters. Rather, this piece provides a discussion of the factors, elements, and characteristics of expert opinions that can generally be considered for any matter to determine the extent to which damages opined on by an expert rise to the level of reasonable certainty.
Attempts to Define “Reasonable Certainty”
Attempts to define reasonably certain have considered phrases such as “rational estimate”; “impermissible speculation”; “intelligent estimate”; “imaginary”; and “intelligible and accurate estimate.” These phrases demonstrate courts’ attempts to better convey expectations and to frame their evaluation of the damages testimony.
Regarding the courts’ varied assessments of “reasonably certain,” Professor McCormick, in his noted article, “The Recovery of Damages for Loss of Expected Profits,” 7 N.C. L. Rev. 235 (1929), observed that the concept is properly treated as a flexible concept:
[A]n examination of a large number of the cases, in which claims for lost profits are asserted, leaves one with a feeling that the vagueness and generality of the principles which are used as standards of judgment in this field are by no means to be regretted. It results in a flexibility in the working of the judicial process in these cases—a free play in the joints of the machine—which enables the judges to give due effect to certain “imponderables” not reducible to exact rule.
Indeed, the quoted phrases from various courts demonstrate the “free play in the joints” described by McCormick. This supports the concept of a “best efforts” doctrine when evaluating the threshold of reasonably certain.
If the courts provide varied guidance on what is or is not reasonably certain, how is an expert to know whether his or her work is reasonably certain? A common theme in the materials and opinions is that the expert must develop a foundation for his or her work that is based on reasonable facts and build on that foundation with the expert’s best effort using the documents and information reasonably available to the expert. An expert must then consider what is his or her “best effort.” This term, much like “reasonable certainty,” does not have a standard, clearly articulated definition. In the following section, we consider the recent decision of Judge Posner in Apple, Inc. v. Motorola, Inc., No 1:11-cv-08540 (N.D. Ill. May 22, 2012). The decision illustrates how the concepts of “reasonable certainty” and “best effort” can determine the outcome of a major commercial litigation.
Apple v. Motorola
In Apple v. Motorola, Judge Posner took a stern approach in assessing the reliability of an expert’s opinion on lost profits, instructing that “any step that renders the analysis unreliable . . . renders the expert’s testimony inadmissible.” Posner proposed three “tests of adequacy” that the court should consider when exercising its duty as gatekeeper. Of particular interest are the reasons the Apple and Motorola experts failed to meet the threshold of reasonable certainty.
Judge Posner specified three tests to assess the merits of expert testimony:
• “[w]hether the expert has sufficiently explained how he derived his opinion from the evidence that he considered”
• whether the expert “[e]mploys in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field”
• “[e]ven where expert testimony is admissible it may be too weak to get the case past summary judgment”
By using these tests, Posner evaluated whether the expert exercised best efforts to develop a
• sound opinion based on
• an accepted method applied to
• relevant data
• judged against the intellectual rigor of an industry expert.
Test 1: The first test of the adequacy of proposed expert testimony for Posner is “whether the expert has sufficiently explained how he derived his opinion from the evidence that he considered. Any step that renders the analysis unreliable renders the testimony inadmissible. This is true whether the step completely changes a reliable methodology or merely misapplies that methodology.” Federal Rule of Evidence 702(d) states that testimony may be admitted if the “expert has reliably applied the principles and methods to the facts of the case.” Thus, Posner takes Rule 702(d) one step further. For Posner, a “best effort” at “reasonable certainty” to “reliably apply” principles to the facts of the case no longer appears sufficient.
Test 2: The second test states that an expert should “employ in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the field.” “Sufficiency” and “reliability,” for Posner, seem to be evaluated as a “best effort” analysis defined as the rigor that could be expected of an industry expert. This standard is a high one and particularly relevant to the (1) quality of data, (2) the expert’s chosen methodology, and (3) the general standards of analysis (for example, did the expert consider alternatives?). Posner seems to advocate preclusion of expert testimony that falls short of the above thresholds: “[W]here an [expert] failed to do so—then his proposed testimony should be barred.” Note the definitive nature of his language; he states that testimony “should” be barred, not that it “may” be barred.
Test 3: Posner’s third test—“[e]ven where expert testimony is admissible it may be too weak to get the case past summary judgment”—is less revealing. Simply put, it appears to serve to reaffirm the wide judicial discretion enjoyed by the court in its role as “gatekeeper.” In other words, despite a valid expert opinion, the merits of the case may be that the testimony’s validity does not compel the court to entertain a trial.
A “reasonably certain” threshold for expert testimony is a function of “best efforts” having regard for the merits of the case. The courts enjoy wide discretion in determining whether or not an expert’s testimony qualifies as a “best” effort, and it appears that the courts will look toward several potential variables: (1) soundness of opinion based upon (2) an acceptable methodology underpinned by (3) relevant data, all of which is to be judged against and, at least according to Posner, (4) the intellectual rigor that could be expected of an industry expert. Where expert testimony falls short of the standard, the plaintiff may face dismissal of the suit.
Keywords: litigation, expert witnesses, damages, reasonable certainty, reasonably certain, Judge Posner
Neil Steinkamp, CVA, CCIFP, CCA, is a managing director in the Dispute Advisory & Forensic Services Group of Stout Risius Ross in New York, New York. Regina M. Alter is a shareholder in Butzel Long's New York, New York, office.