Jury Awards More Than Plaintiff’s Expert

Alaska Rent-a-Car, Inc. v. Avis Budget Group, Inc., 2013 U.S. App. LEXIS 12709 (June 19, 2013)

In appealing a $16 million jury award to Alaska Rent-A-Car for the breach of a settlement agreement, Avis claimed the plaintiff’s expert made unsupportable assumptions and comparisons regarding the market and other car rental companies that compromised his calculations. The 9th Circuit reviewed the district court’s denial of Avis’s Daubert motion and its motion for judgment as a matter of law (JMOL).

The case arose out of a 1997 settlement agreement Avis made with a number of its licensees after it had bought another rental car company that the licensees claimed would unlawfully compete in their territories. Under the contract, Avis was able to purchase other companies but not use its personnel to steer customers toward the other brand. The plaintiff, Alaska Rent-A-Car, was a longtime Avis licensee and party to the agreement. In 2002, Avis bought Budget Rent-A-Car out of bankruptcy and subsequently centralized its operations. This meant creating a single marketing and sales force that answered calls to both companies’ reservation lines. Alaska sued, claiming Avis’s actions violated the settlement agreement because they caused Alaska’s business to go to Budget, its local competitor.

The district court granted Alaska’s pretrial motion and found Avis liable. A jury trial on damages followed. Both sides presented experts, and Avis filed a Daubert motion to exclude the damages testimony to be given by Alaska’s expert.

Specifically, Alaska’s expert tried to create a hypothetical world in which all elements stayed the same except the breach had not occurred. As a point of comparison, he used the experience of another rental car business, Alamo-National, which was bought out of bankruptcy by another company at around the time Avis bought Budget. He suggested that Alamo and Budget both received an infusion of capital and help from management to compete. But Alamo’s buyer had no other car rental company. Therefore, Alamo did not benefit from a centralized sales and marketing force the way Budget did, thanks to Avis’s efforts. The expert attributed Budget’s faster recovery to Avis’s wrongdoing. He also assumed Alamo’s national rate of rebound was an indicator for how Budget would have fared, but for the breach. Next, he projected how much market share Budget obtained as a result of the breach. The car rental market was a national market and local factors did not distort national rebound rates, he maintained.

After it declared bankruptcy, Alamo saw a 35% drop in market share. It slowly recovered after it was bought. In contrast, Budget was in bankruptcy for a shorter time and recovered faster. The expert estimated that Budget would have lost 32.5% of its market share had Avis bought it but not breached the agreement.

To approximate how much business a rejuvenated Budget took away from Alaska, the expert focused on the Juneau airport. This specificity made it easy to examine the market before and after Budget entered. He found that over the first three years of its entry it claimed an average of 23.3% of the market. Approximately 48% of the gain came from Alaska customers, and the remainder from other companies. To arrive at a statewide figure, he assumed that, after the breach, Budget got roughly half of its customers from Alaska statewide. Based on his assumptions and inferences, he calculated lost profits of roughly $4.1 million from 2003 to 2008 and future lost profits, discounted to present value, of $11.7 million.

Avis’s expert critiqued the competing testimony but did not set down any damages amount for the jury. The comparison to Alamo, he said, was invalid given the difference in the companies’ duration of bankruptcy and other factors (unspecified). Also, considering how differently the national and the Alaska markets worked, the rival expert was wrong to apply the national market share comparison to Alaska. Similarly, considering the Juneau market only made up 5% of the statewide rental car market, extrapolating from its experience meant ignoring factors specific to the rest of the state. For example, towns across the state relied on roads to link them and doing business more often required a rental car.

In response to Avis’s Daubert challenge, the trial court allowed Avis to question Alaska’s expert. The court subsequently decided to let the testimony in, subject to cross-examination during trial. The jury returned a unanimous $16 million verdict for Alaska, which was slightly more than the amount that Alaska’s expert had proposed. In a post-trial motion, Avis unsuccessfully argued that Alaska did not prove damages with sufficient certainty. Subsequently, it appealed the district court’s prior rulings to the 9th Circuit.

Avis’s appeal as to damages evidence drew on federal and state law. It said the calculation of Alaska’s expert had three fatal flaws: (1) using Alamo as a comparative company; (2) using the national rather than the Alaska market as a baseline; and (3) extrapolating from the Juneau market to the Alaska market. Under Fed. R. Evid. 702 and Daubert, the expert’s calculations were unreliable and the district court erred in admitting the testimony.

The appeals court agreed that Avis’s arguments might have some merit. But, it said, they all went to impeachability, not admissibility. Although the district court must screen the jury from “unreliable nonsense opinions,” it is not supposed to exclude opinions simply because they are impeachable. Here the expert was qualified, and his general methodology was not in dispute. Avis gave the jury good reasons to reject the testimony, but the judge did not err by allowing jury members to hear it. Because the judge is a gatekeeper, not a fact finder, “the gate could not be closed to this relevant opinion,” the appeals court concluded.

Avis also repeated its claim that Alaska did not prove damages with reasonable certainty, as the applicable New York law required. The district court erred when it denied its JMOL motion based on that ground.

The 9th Circuit disagreed. New York courts generally reject lost profits if there is a new business venture or the claimant is an existing business projecting future profits when it does not have a past history of profits. Here, Alaska had been operating a successful business “since before statehood.” Although a jury might have credited Avis’s impeachment testimony, rejected the damage calculations of Alaska’s expert, and awarded nothing, it chose not to do so. The jury had the right to decide, said the court, and affirmed the lost profits award.

Juries sometimes react to experts in unexpected ways. In this case, they awarded more than requested.

At Rosenfarb LLC we produce well supported, well-reasoned and well communicated damage calculations that withstand the rigors of litigation. We are a firm of forensic accounting and valuation experts. We understand business, have keen insights and always connect the dots. We understand the litigation process. We frame the issues simply and in alignment with the litigation strategy. We use logic to support our opinions, while creating compelling stories. We are sincere, professional and credible. We are accounting experts with legal acumen.

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