Methodology employed by the Business Valuation Expert Witness to compute damages passes the Daubert test amidst alleged violations of consumer protection laws

Methodology employed by the Business Valuation Expert Witness to compute damages passes the Daubert test amidst alleged violations of consumer protection laws

This case involved a dispute over the admissibility of expert testimony regarding damages in a lawsuit filed by Innovative Solutions International, Inc. (“Plaintiff”) against multiple Defendants, including Houlihan Trading Company, Inc. and Pilgrim’s Pride Corporation (“Pilgrims”). 

Pilgrims, a company involved in preparing and packaging chicken for resale, supplied chicken that went through several vendors before reaching Defendant Houlihan Trading Co., Inc., who then sold it to the Plaintiff. The Plaintiff used the chicken in various food products that were ultimately sold to Trader Joe’s. Following customer complaints about bones in the products, Trader Joe’s terminated its contract with the Plaintiff. Consequently, the Plaintiff initiated legal proceedings against several entities in the supply chain, including Houlihan and Pilgrims. The lawsuit was filed on the grounds of multiple breaches of warranty and contract, misrepresentation, negligence, and violations of consumer protection laws. To support its claim for damages, the Plaintiff sought the admission of expert testimony from Steven J. Kessler. However, Pilgrims petitioned the Court to exclude or limit Kessler’s expert testimony, citing Rule 702 and the Daubert v. Merrell Dow Pharmaceuticals case (509 U.S. 579, 1993).

Business Valuation Expert Witness

Steven J. Kessler, C.P.A., A.B.V., C.F.F., has significant experience in the valuation and analysis of economic damages for business and personal injury cases and contested economic damages litigation cases. He is a Certified Public Accountant. He earned professional certifications such as Accredited in Business Valuation (ABV), Certified Valuation Analyst (CVA) and Certified in Financial Forensics (CFF), among many others.

Discussions by the Court

Pilgrims initially argued for the exclusion of Kessler’s testimony, contending that his method of calculating profits did not adhere to a “generally accepted way.” The Court noted that Pilgrims incorrectly applied the Frye standard, emphasizing that it had been superseded by Federal Rule of Evidence 702 according to the Daubert decision. The Daubert standard represented a departure from the stringent “general acceptance” standard set by Frye, emphasizing that while general acceptance within a scientific community could be a relevant factor, Daubert aimed to establish a more flexible test for the admissibility of expert testimony. Daubert clarified that expert testimony must be both reliable and relevant to the trier of fact, with general acceptance of a methodology, being just one factor among others in the non-exhaustive list of considerations.

In the Daubert inquiry, Kessler’s methodology for establishing expert evidence was assessed. Kessler began by calculating the Plaintiff’s average sales growth rate, determining it to be slightly over 10% based on a seven-year period from 2013 through 2019. Next, he calculated the Plaintiff’s estimated lost profits for 2022 by using the 2019 sales volume as a base, applying the 10% annual growth rate, and factoring in the average selling price per pound for that year. In performing these calculations, Kessler employed actual figures for products sold, sales price, overhead costs, and other relevant variables for the relevant year. Lastly, Kessler utilized the annual growth rate and net loss in profits as inputs to calculate future lost profits for the subsequent 14 years. This projection involved applying the appropriate growth rate to the estimated lost profits amount.

According to Daubert, a proponent of expert testimony must provide a precise explanation of how conclusions were reached and reference objective sources to support reliability. Mere assertions of “universal acceptance” are insufficient; instead, the proponent must demonstrate in an objective manner that the chosen scientific method is reliable. Despite Pilgrims’ challenge to the reliability of Kessler’s report, which it claimed lacked evidence of widespread acceptance, the Court noted that Daubert’s focus is on reliability and relevance rather than general acceptance.

The Court found Kessler’s methodology, as detailed in calculating the Plaintiff’s damages, to be both reliable and relevant. The method, involving the comparison of profits over benchmark periods before and after an alleged injury, is widely accepted across jurisdictions. The Court cited the “before and after” or “profit history” method, endorsed in cases such as Bigelow v. RKO Radio Pictures 327 U.S. 251 (1946). Despite Kessler not explicitly labeling his approach as such, the Court deemed it fundamentally the same as the endorsed methods.

In light of Daubert’s liberal approach, the Court found Kessler’s method reliable. Any disagreement with specific calculations could be addressed through cross-examination during trial, as per Daubert’s recommendation for challenging admissible evidence.

In the alternative, Pilgrims sought to exclude Kessler’s testimony, claiming faulty data. According to Federal Rule of Evidence 702(b), expert testimony must be based on sufficient facts. However, the emphasis of Rule 702(b) is not to allow the Court to exclude testimony based on a belief in one version of the facts over another. Pilgrims’ argument was deemed unsuccessful, as it essentially amounted to a disagreement about the underlying set of facts, which Rule 702(b) prevents from being a basis for exclusion.

Pilgrims’ additional argument contends that Kessler’s failure to include mitigation in his calculation of damages renders his testimony unreliable. Specifically, Pilgrims asserted that Kessler should have factored in Plaintiff’s potential profits to offset the damages outlined in his report. However, the Court disagrees with this stance, noting that although the failure to mitigate can be considered in a damage award, there is no authoritative basis for excluding testimony solely due to the omission of mitigation in the damages calculation. According to Daubert, Kessler’s decision not to include mitigation does not render his testimony unreliable or irrelevant, as the question of whether Plaintiff could have mitigated its damages is a matter of fact for the jury to determine.

Pilgrims challenged Kessler’s inclusion of a 15-year projected loss of profits, claiming insufficient basis for extending sales projections post-recall. However, Kessler’s report clarified that the projected loss of profits across a 15-year period aligned with the Plaintiff’s sales relationship with Trader Joe’s, which spanned 15 years. Court acknowledged Pilgrims concern that a longstanding business relationship didn’t guarantee future business but highlighted that such a guarantee wasn’t a requirement for the admissibility of the expert testimony.

Defendant challenged a crucial assumption in Kessler’s damages computation, specifically his exclusion of the year 2020 due to the COVID pandemic. Again, Pilgrim’s fails to explain why decisions made by an expert are anything more than questions of reasonableness best left for a jury to decide. Emphasizing the principles in Daubert, the Court asserted that once an expert meets the reliability threshold, questions regarding the weight of the testimony are within the jury’s purview, not the Court’s. In essence, the Court clarified that the reasonableness of Kessler’s assumptions in calculating damages is a matter for the jury to decide and does not constitute grounds for exclusion.


The Court denied Defendant Pilgrims’ Pride Corporation’s motion to exclude or limit the expert testimony of Steven J. Kessler. The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.

Key Takeaways

This case demonstrates that under the Daubert standard that now governs the admissibility of expert testimony, the focus is on the reliability and relevance of the expert’s principles and methodology, not the rigorous “general acceptance” standard. While the Defendant argued that the methodology employed by Plaintiff’s expert, Steven Kessler’s wasn’t generally accepted, the Court found it satisfied Daubert because it was reliable and relevant. Where the expert meets the reliability threshold as explained in Daubert, questions regarding the weight to be accorded to the testimony are for the jury, not the Court. Secondly, the Court held that outright exclusion is not warranted if the expert does not include mitigation as part of his calculation of damages. Finally, opposing parties can challenge the facts underlying an expert’s assumptions through cross-examination rather than exclusion. Disagreements about the facts are not enough to exclude expert testimony as unreliable.