Five Problems to Look For in an Opposing Economic Damages Report

Most opposing damages reports do not fail because the arithmetic is wrong. They fail because one assumption carries the total and nobody tested it. These five problems account for most of what a rebuttal economist finds. Counsel can look for each of them before the report goes to an expert, and should know which ones are present before deciding how to depose the opposing economist.

This checklist is written by Roman Garagulagian, Ph.D., principal of Forensic Economic Services, LLC and Vice President–West of the National Association of Forensic Economics. The same five problems apply to lost earnings, lost profits and business valuation reports, with different names for the parts.

1. The number cannot be reproduced from the report

The first test is mechanical. Take the report’s stated inputs and rebuild its total. If it cannot be done, the report is either missing inputs or is using ones it does not disclose.

Under Federal Rule of Civil Procedure 26(a)(2)(B), a retained expert’s report must include the facts or data the expert considered. In practice, reports often cite “company records” or “industry data” without identifying which records or which data, give a growth rate without saying where it came from, or show a present-value total without the year-by-year schedule behind it. Each gap is a request for production and a deposition topic.

What to look for: a year-by-year schedule; sources for each rate; the workpapers or spreadsheet; whether the tables add to the total in the text.

2. The baseline is not anchored to the record

Every damages figure compares a “but-for” world with the actual one. The but-for baseline is the most important input and the easiest to inflate.

• Lost earnings: a single strong year used as the base; a promotion assumed without evidence; overtime or bonus treated as guaranteed.
• Lost profits: projections prepared for the litigation rather than in the ordinary course of business; revenue growth well above the company’s own history; a start-up with no track record treated as a mature business.
• Business value: comparables that are not comparable in size, market or risk.

California courts act as gatekeepers against speculative lost-profit opinions. In Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, the Supreme Court upheld the exclusion of a lost-profits opinion that projected a small company into the market share of industry leaders. In federal court, Rule 702 was amended in December 2023 to make clear that the proponent must show it is more likely than not that the expert’s opinion reflects a reliable application of the method to the facts.

What to look for: which years the baseline uses and why; whether pre-dispute budgets or forecasts exist and were ignored; growth assumptions compared with the plaintiff’s or the company’s own history.

3. The growth and discount rates do not fit together

Future losses are grown and then discounted to present value. The two rates have to be consistent: both nominal or both real, drawn from comparable periods, and appropriate to the risk of the cash flow being discounted. The gap between them, the net discount rate, drives the present value more than either number does alone.

Common problems include a nominal growth rate paired with a real discount rate, a risk-free Treasury rate used to discount uncertain business profits (or a high equity rate used to discount a fixed wage stream), a discount rate stated without a source or date, and discounting applied to losses that are already in the past.

What to look for: the source and date of each rate; whether they are both nominal or both real; how much the total changes if the net discount rate moves by one percentage point.

4. Offsets and costs are missing

A damages figure is a net number. Reports that overstate damages often do it by leaving something out rather than by adding something wrong.

• Employment: interim earnings after termination; the value of benefits already counted in compensation; any cut-off in back pay. See back pay vs. front pay.
• Personal injury and wrongful death: residual earning capacity after the injury; in wrongful-death matters, the decedent’s personal consumption.
• Lost profits: the incremental costs the business would have incurred to earn the lost revenue; lost revenue is not lost profit.
• Any claim: mitigation, whether the plaintiff found other work, replacement customers or alternative uses for the assets.

What to look for: a line for each offset, even if it is zero, and an explanation of why it is zero.

5. One duration assumption carries the total

How long does the loss last? Front pay to age 67, a work-life expectancy taken from a table without adjustment, a business that loses a customer forever, a price effect that never fades. In many reports the duration assumption accounts for most of the total, but it gets one sentence.

A useful exercise is to recompute the total with a shorter, supportable duration. If most of the damages disappear, that assumption is where the deposition should go, and where the rebuttal report should concentrate.

What to look for: the stated end date of each loss stream; the evidence cited for it; whether the report shows any sensitivity to it.

What to do with what you find

A rebuttal does not need to offer a rival number to be effective. The strongest rebuttals reproduce the opposing figure exactly, identify the assumption the total depends on, concede what the record supports, and show the range that results when the unsupported assumption is corrected. That is how our rebuttal of an opposing damages expert is structured. Older articles on the same subject cover what a rebuttal report contains and how an opposing expert’s opinion is analyzed.

For practice-specific versions of these problems, see personal injury lost earnings, employment damages and commercial damages and lost profits.

Frequently asked questions

When should a rebuttal economist review the opposing report?

As soon as it is served, and before the opposing expert is deposed. A review that identifies which assumption carries the total lets counsel focus the deposition on it and gives time to decide whether a rebuttal report is needed at all.

Does a rebuttal expert have to calculate their own damages figure?

No. A rebuttal can be limited to testing the opposing analysis. Whether to offer an affirmative alternative is a strategic decision for counsel, and it can be made after the review.

What should I send for a rebuttal review?

The opposing report with all exhibits and schedules, any workpapers or spreadsheets produced, the documents the report relies on, the complaint, and the scheduling order with the rebuttal deadline.

Is a consulting-only review disclosed to the other side?

A consulting expert who is not designated to testify is generally protected from discovery, subject to the rules of the forum. Counsel decides whether and when to designate.