Damages Theory Properly Excluded by Evidentiary Rulings

In Microstrategy, Inc. v. Business Objects, S.A., et al. (Fed. Cir. November 17, 2005) the court found no abuse of discretion in the district court’s exclusion of MicroStrategy’s expert reports, expert testimony, and additional non-expert damage theories which disposed of much of the dispute with various evidentiary rulings.

MicroStrategy’s business tort case relied heavily on the presentation of its damages expert, David E. Yurkerwich, managing director and chairman of InteCap, Inc., and his three expert reports. These three expert reports, however, were excluded primarily due to a flawed methodology that did not consider relevant factors in its damages analysis, while the non-expert damage theories were excluded due to a failure to timely supplement discovery interrogatories.

During the "dot com" bubble burst of the late 1990s, MicroStrategy began to suffer severe financial problems and a major accounting error required a downward readjustment of its 1997, 1998, and 1999 earnings reports. In the aftermath, MicroStrategy’s stock plummeted 62% in one day, eventually falling from a high of $313 per share to a low of 49 cents per share. The company also faced a U.S. Securities & Exchange Commission (SEC) investigation and a series of class action law suits. As MicroStrategy fought to remain solvent, it laid off two thirds of its workforce and cut its sales and marketing budget in half. MicroStrategy’s chief executive officer (CEO) summed up this period in three words: "It was painful."

According to the decision:

Confronted first with the initial expert report, the district court properly concluded that, despite the rather obvious role that MicroStrategy’s financial instability played in the company’s ongoing struggles, Yurkerwich attributed all of the company’s post 2000 losses solely to the alleged tortious conduct by Business Objects. No wonder that the district court found that the expert report did not link a single misconduct to a specific injury.

In this case, the record shows that the excluded expert report did not link a single loss to a specific misconduct and ignored significant factors that might have excluded the torts as the reason for the losses. For these reasons, the district court was well within its discretion to exclude it. . . . As to the supplement and revised report, the district court also excluded these reports because they both suffered from the same flawed methodology as the initial expert report.

The district court also acted within its discretion in preventing Yurkerwich from testifying at trial. . . . In this case, the district court determined that Rule 702 was not satisfied, in part, because Yurkerwich’s principles and methods, as disclosed in his three expert reports, were speculative and unreliable. For this reason alone, the district court was well within its discretion to prevent Yurkerwich from testifying.

The district court also acted within its discretion in excluding MicroStrategy’s non-expert damages theories for failure to supplement discovery interrogatories. Specifically, during the discovery process, Business Objects served an interrogatory on MicroStrategy that required MicroStrategy to identify its damages theories and the factual basis and methodology for its calculations. At trial, MicroStrategy sought to introduce evidence of damages not disclosed in response to that interrogatory.

[MicroStrategy acknowledged that] no supplements incorporating the non-expert damages evidence were ever filed. Specifically, MicroStrategy sought to excuse its failure to supplement because they had relied on their expert report which the district court excluded on the eve of trial and left no time to supplement the interrogatory responses again:

THE COURT: You made reference to the [expert] report . . . which is no longer relevant to this particular case
Mr. MOLL: Hm-hmm
THE COURT: You never supplemented your answers
Mr. MOLL: No, we didn’t, because again, the procedural posture of this was, the [expert] report had been submitted at the time