Two of the more interesting recent Daubert rulings in the Seventh Circuit are Lewis v. CITGO Petroleum Corp., 561 F.3d 698 (7th Cir. 2009) and Euro Holdings Capital & Investment Corp. v. Harris Trust & Savings Bank, No. 05 C 1181, 2009 WL 650373 (N.D. Ill. Mar. 11, 2009).
In CITGO the Seventh Circuit provided a useful reminder that district courts not only retain discretion when applying Daubert factors to challenged expert testimony, district courts also retain discretion in deciding how the Daubert issue may be raised and presented in the district court in the first place. The underlying claim in CITGO was a personal injury action brought by two workers who claimed that they had been injured when exposed to hydrogen sulfide gas while working at a CITGO refinery. Id. at 700. The plaintiffs sought to establish causation through expert testimony from an internist who specialized in allergies and from a psychiatrist who was board certified in neurology. Id. at 701. The internist testified that the hydrogen sulfide exposure had caused one of the plaintiffs to develop occupational asthma and had caused the other plaintiff “a bronchitic problem” and possible sinus disease. Id. The neurologist found that one of the plaintiffs suffered headaches with the “most likely causes” being “sequelae of the work place incident.” Id. The other plaintiff, according to the neurologist, “very likely suffered post traumatic stress disorder” following the incident. Id.
CITGO did not file a “Daubert” motion with respect to the two experts. Rather, it moved for summary judgment on the ground that plaintiffs could not establish causation. In that regard, CITGO challenged the qualifications of the internist to provide causation testimony. Specifically, it noted that the internist was an allergist with “no training or experience in toxicology or epidemiology.” Id. at 706. He had had only one patient 12 years earlier who had suffered from hydrogen sulfide exposure and had spent only 30 minutes researching a medical database for relevant information about hydrogen sulfide exposure. Id. CITGO also challenged the internist’s methodology on the ground that his reasoning contained several unexplained gaps and his conclusions were mere speculation. Id.
CITGO challenged the testimony of the neurologist on the ground that his methodology was faulty. Among other things, the neurologist never examined either of the plaintiffs until two and one-half years after the accident, he failed to consider alternative causes, for the plaintiffs’ symptoms, and he did not explain how his different conclusions related to one another. Id. The plaintiffs did not respond to the substance of CITGO’s challenges to their expert witnesses. Instead, they “chose to argue solely” that “it was improper for CITGO to challenge the admissibility of their experts’ testimony in a summary judgment motion” because CITGO had not filed a separate Daubert motion or motion in limine directed at their expert witnesses’ testimony. Id. at 706. The district court did not accept that argument and entered summary judgment in favor of CITGO. The Seventh Circuit affirmed. In doing so, the Seventh Circuit noted that “the law grants the district court great discretion regarding the manner in which it conducts that [Daubert] evaluation.” Id. at 704. Moreover, it noted that the court has upheld the sua sponte consideration of the admissibility of expert testimony by a district court. For that reason, the Seventh Circuit held that “it is no import that CITGO objected to the expert testimony only in its motion for summary judgment as opposed to first filing a separate motion in limine.” Id. at 704-05.
Once the court had held that there was no mandatory procedure through which a party must raise a Daubert challenge, the fact that the plaintiffs had not responded to the substance of CITGO’s Daubert argument ended the court’s analysis. It held that “the district court did not abuse its discretion when it declined to consider the testimony” of the two expert witnesses and it therefore affirmed the entry of summary judgment for CITGO. Id. at 706.
In the Euro Holdings decision, the Northern District of Illinois addressed in some detail the interplay between Daubert requirements and expert testimony with respect to lost future profits. In that case, Euro Holdings sought to recover from Harris Trust on numerous grounds related to a tortious interference with contract claim. Under Euro Holdings’ theories, Harris Trust had caused the failure of a transaction in which Euro Holdings would have acquired a 90% equity stake in LFG, LLC, which was a futures commission merchant, and in which Harris Trust would have acquired Union Discount, the bank subsidiary of Union plc. Id. at *2. Euro Holdings intended to continue operating LFG with only slight modifications, but apparently intended to “create a boutique financial services firm using the clientele linked with [Union Discount].” Id. at *9.
In order to establish lost future profits, Euro Holdings relied on the testimony of an expert witness, Paul Charnetzki. With respect to lost profits associated with the loss of the LFG acquisition, Mr. Charnetzki began his calculations with the actual past performance of LFG and then modified that performance to reflect Euro Holdings’ intention to eliminate certain aspects of LFG’s business after its acquisition. He then modified LFG’s financial information so that it could be compared with other similar firms and made projections regarding LFG’s likely future performance based on specific assumptions that he identified and for which he articulated reasonable bases. Id. at *7. The district court held that this methodology was sufficient at least to allow Mr. Charnetzki’s testimony to survive challenge via a motion in limine. Id. at *8.
However, the district court granted a motion in limine directed at Mr. Charnetzki’s future profit testimony associated with the purchase of Union Discount. The district court clearly was troubled by the fact that the business that Euro Holdings intended to create with its purchase of Union Discount never was in existence. Thus, aside from the damage calculation being too speculative, the court noted that the claim itself likely was barred by the Illinois “New Business Rule” under which recovery for lost profits of a new business generally is not allowed because such a loss is “too uncertain, specific and remote to permit recovery.” Id. at *5 (further citation omitted). In the end, the district court concluded that Mr. Charnetzki’s methodology for attempting to calculate the lost profits of a business that never existed was too unreliable to survive a Daubert challenge. The court accordingly granted the motion in limine with respect to that portion of Mr. Charnetzki’s testimony.
Patrick J. Kenny serves as the Editor-in-Chief of Daubert Online, is a member of the Steering Committee for DRI’s Commercial Litigation Committee and serves as the Expert Witness Chair for that Committee. He is a partner with Armstrong Teasdale LLP where he has practiced since 1993 following a clerkship with the Hon. Pasco Bowman (U.S.C.A., Eighth Circuit). His practice focuses on complex business and insurance disputes including non-compete cases, disputes involving business “divorces,” and commercial fraud and business torts (including statutory actions). He also has significant experience in cases involving professional negligence and other types of tort claims. He has tried jury cases to verdict in Missouri and Illinois, handled and supervised numerous appeals, and served as a neutral in scores of cases. He is listed in The Best Lawyers in America (Insurance Law) 2007 - 09 and can be reached at Armstrong Teasdale LLP, One Metropolitan Square, Suite 2600, St. Louis, Missouri 63102, (314) 621-5070 (general line), (314) 552-6613 (direct), (314) 621-5065 (general facsimile), (314) 612-2262 (direct facsimile), e-mail: pkenny@armstrongteasdale.com. For further information click on: http://www.armstrongteasdale.com/Attorney.php?HrID=00201.
