SAN FRANCISCO (Legal Newsline) - The California Supreme Court, overruling the Court of Appeal, determined the trial court was correct in excluding the testimony of an expert witness in a breach of contract case against the University of Southern California.
"We conclude that the trial court has the duty to act as a 'gatekeeper' to exclude speculative expert testimony. Lost profits need not be proven with mathematical precision, but they must also not be unduly speculative."
"Here, the court acted within its discretion when it excluded opinion testimony that the company would have become extraordinarily successful had the university completed the clinical testing," stated the Nov. 26 opinion.
In 1991, plaintiff Sargon Enterprises, Inc. patented a dental implant that its president and chief executive officer, Dr. Sargon Lazarof, had developed.
Sargon contracted with USC for the University to conduct a five-year clinical study of the implant in 1996 and in May 1999, Sargon sued USC and individual faculty members of the dental school, alleging breach of contract.
The case went to trial in 2003 and although the jury found that USC had breached the contract, Sargon appealed because they were unable to put on evidence regarding lost profits and they were only awarded $433,000.
The Court of Appeal ruled in favor of Sargon and remanded the case back to the trial court for a second trial.
In the second trial, USC moved to exclude one of Sargon's experts, James Skorheim, on the basis that his testimony would be "speculative."
After an eight-day evidentiary hearing in which Skorheim testified that Sargon's lost profits "ranged from $220 million to $1.18 billion," the court issued a 33-page written ruling excluding Skorheim's testimony.
"Mr. Skorheim's opinion leaves the determination of up to a billion dollars of lost profit damages to pure speculation," the trial court concluded.
After the trial court excluded Skorheim's testimony, the parties stipulated to entry of judgment for $433,000 on Sargon's breach of contract claim and Sargon appealed for the second time.
Again, the Court of Appeal reversed the trial court's judgment and remanded the case for a new trial on lost profits, concluding the trial court had erred in excluding Skorheim's testimony.
"If USC had not sabotaged the clinical study of the Sargon implant, Sargon would have had a successful clinical trial to its credit and a prominent university using the implant at its dental school. But it was denied," stated the Court of Appeal opinion.
"Through its wrongful conduct, USC allegedly caused the loss of profits and has made the proof of lost profits all the more difficult, thereby rendering its evidentiary attack unconvincing."
The Supreme Court then granted USC's petition for review of whether the trial court erred in excluding Skorheim's lost profit testimony.
Justice Ming W. Chin analogized, "[I]f a first-time author sues a publisher for breach of a contract to publish a novel, could a witness who was an expert on the publishing business, literature, and popular culture testify that the novel, if published, would have become a national bestseller, won the Pulitzer Prize, and spawned a megahit movie with several blockbuster sequels?
"Could a jury award lost profits based on that scenario? Or could it compromise by finding the book would have been a bestseller but would not have won the Pulitzer Prize, and would have spawned a moderately successful movie but no sequel?"
"World history is replete with fascinating "what ifs" ... many serious, and not-so-serious, historians have enjoyed speculating about these what ifs ... few, if any, claim they are considering what would have happened rather than what might have happened."
"The Court of Appeal majority was concerned that '[t]he trial court's ruling is tantamount to a flat prohibition on lost profits in any case involving a revolutionary breakthrough in an industry.' We disagree."
"Other avenues might exist to show lost profits . . . The trial court's ruling merely meant Sargon could not obtain a massive verdict based on speculative projections of future spectacular success."
"We reverse the judgment of the Court of Appeal and remand the matter to that court for further proceedings consistent with this opinion."