Plaintiff American Northwest Distributors Inc. (“ANW”) was the Washington distributor of Four Roses bourbon, produced by Defendant Four Roses Distillery LLC (“Four Roses”), for about five years from 2015-2020. In 2020, after a pattern of late payments from ANW, Four Roses terminated the distribution agreement and switched to a competitor, Young’s Market Company, LLC (“Young’s Market”). ANW went to arbitration with Young’s Market, as provided for in Washington’s statutes regulating liquor distribution, and the arbitrator awarded ANW what she found to be the fair market value of ANW’s lost distribution rights.
After the arbitration, ANW sued Four Roses, claiming Four Roses had breached the parties’ contract and interfered with ANW’s other business relationships, causing ANW damages beyond what it received from Young’s Market in arbitration. Four Roses counterclaimed for invoices ANW had never paid.
ANW has retained Neil Beaton to analyze and determine the damages it has incurred as the result of Four Roses’ wrongful termination of ANW’s distribution agreement.
Four Roses filed a motion to exclude ANW’s expert witness, Neil J. Beaton. Four Roses first argued that Beaton’s testimony regarding ANW’s lost profits is inadmissible because ANW cannot recover those profits as a matter of law, so that any testimony on this issue is “not helpful to the trier of fact.” The Court held that ANW may seek such recovery under common law contract claims and Four Roses’ argument on this point is unpersuasive. Four Roses also contended that Beaton’s testimony is a “rehash” of the damages he attested to in arbitration. While there may be overlap in Beaton’s financial figures, there are genuine disputes between the parties as to how that impacts the damages analysis in this case.
Business Valuation Expert Witness
Neil Beaton is a Managing Director with Alvarez & Marsal Valuation Services in Seattle. He specializes in the valuation of public and privately held businesses and intangible assets for purposes of litigation support (lost profits claims, marriage dissolutions and others), acquisitions, sales, buy-sell agreements, ESOPs, incentive stock options and estate planning and taxation. He also performs economic analysis for personal injury claims, wrongful termination and wrongful death actions.
Discussion by the Court
Four Roses also questioned the reliability of Beaton’s financial projections, asserting that they are overly optimistic and lack “reasonable certainty.” The Court held that while Beaton’s projections may be “optimistic,” that does not make his testimony unreliable if he lays an acceptable foundation for those calculations.
Beaton has disclosed his assumptions and methodology for projecting lost profits, and Four Roses has not shown that those methods lack a reliable basis in the knowledge and experience of Beaton’s discipline. Four Roses can challenge Beaton’s approach at trial, but his choice of assumptions does not render his testimony inadmissible—only more or less persuasive when evaluated as a whole.
The judge at arbitration took a similar approach, recognizing that Beaton held undeniable expertise in business valuation—but the assumptions upon which he applied that expertise did not lead to a persuasive conclusion.
As the judge at arbitration recognized, business valuation “is as much an art as a science.” Four Roses did not challenge Beaton’s methods—it questioned the growth assumptions and discretionary factors that were necessary to financial projections and challenged the figures he arrived at.
Beaton’s convoyed sales estimate relied on the assumption that Four Roses’ conduct interfered with ANW’s sales relationships. Beaton’s testimony regarding “convoyed sales,” however, is no longer relevant, even if it could be considered reliable (an issue the Court need not decide). Beaton opines that ANW’s sales of Four Roses products motivated its customers to buy more products overall—such that Four Roses’ termination negatively impacted these purchases. In light of the Court’s determination, however, that Four Roses did not tortiously interfere with ANW’s other business relationships, Beaton’s “convoyed sales” testimony is no longer relevant and will be excluded.
Held
In conclusion, the Court denied Four Roses’ motion to strike the testimony of Neil J. Beaton as to testimony regarding lost profits and other damages and granted it as to testimony regarding ANW’s loss of “convoyed sales.”
Key Takeaway:
The Court has “broad latitude” in determining an expert’s reliability and finds no reason to question the reliability or relevance of Beaton’s testimony on lost profits under Rule 702. Moreover, Beaton has disclosed his assumptions and methodology for projecting lost profits, and Four Roses has not shown that those methods lack a reliable basis in the knowledge and experience of Beaton’s discipline.
Case Details:
| Case Caption: | American Northwest Distributors Inc V. Four Roses Distillery Llc |
| Docket Number: | 2:22cv1265 |
| Court: | United States District Court for the Western District of Washington |
| Order Date: | August 20, 2024 |
Leave a Reply