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December 4, 2012

For years, plaintiffs and defendants have battled over the standards for admission of expert witness opinions in California courts. Defendants frequently argue that the opinions of plaintiffs’ experts on issues ranging from damages to causation are speculative and lack an evidentiary foundation. Plantiffs respond that California trial judges do not play the same role as federal district judges, who are directed under the Daubert standard to act as gatekeepers, weighing the evidentiary basis of expert opinions before they are admitted in Court.

The California Supreme Court has just issued an opinion which sets clear standards for the admission of expert testimony and affirms a “gatekeeping” role for California trial courts. In Sargon Enterprises, Inc. v. University of Southern California, Case No. S191550 (November 26, 2012), a small dental supply company sued a university for breach of a contract to conduct clinical trials of a newly developed and patented implant. In an initial trial, the Court excluded claims for lost profits on the ground that they were not foreseeable.

The case was appealed and remanded, with the Court of Appeal holding that the trial court order excluding damages for lost profits was in error. On remand, the dental implant company sought to introduce the testimony of a Certified Public Accountant, James Skorheim. Although Skorheim acknowledged that the dental supply company’s maximum historical profit had been $101,000 annually, he was prepared to testify that it had lost between $220 million to $1.18 billion in future profits as a result of the university’s breach. The trial court held an eight day evidentiary hearing and concluded that Skorheim’s opinions were speculative and should be excluded.

The trial court found it unreasonable for Skorheim, “or any such expert, to rely on much of the data which forms the basis of his opinions, because no data bears any resemblance to Plaintiff’s historical profits or to those of any similar business.” Skorheim’s opinions were based on comparisons of the plaintiff to much larger companies. Ultimately, “Mr. Skorheim’s opinion leaves the determination of up to a billion dollars of lost profit damages to pure speculation.” The Court of Appeal again disagreed and found that the trial court had erred. The Supreme Court granted a petition for review.

The Supreme Court started by summarizing the role of the trial court in evaluating expert testimony.

Under California law, trial courts have a substantial “gatekeeping” responsibility . . . . An expert opinion has no value if its basis is unsound.  Matter that provides a reasonable basis for one opinion does not necessarily provide a reasonable basis for another opinion.  Evidence Code section 801, subdivision (b), states that a court must determine whether the matter that the expert relies on is of a type that an expert reasonably can rely on in forming an opinion upon the subject to which his testimony relates. We construe this to mean that the matter relied on must provide a reasonable basis for the particular opinion offered, and that an expert opinion based on speculation or conjecture is inadmissible.

The Supreme Court found that the exercise of this gatekeeping function was fundamental to the rationale for admitting expert opinions: “Exclusion of expert opinions that rest on guess, surmise or conjecture is an inherent corollary to the foundational predicate for admission of the expert testimony:  will the testimony assist the trier of fact to evaluate the issues it ust decide?”

 The Sargon decision concluded that the basis for the trial court’s authority to scrutinize the validity of expert opinions is found in both Sections 801 and 802 of the Evidence Code. “[S]ection 802 authorizes a court to promulgate case law restrictions on an expert’s ‘reasons.’ This means that a court may inquire into, not only the type of material on which an expert relies, but also whether that material actually supports the expert’s reasoning. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered.”

Based upon this review of existing law, the Supreme Court formulated the following tests for determining the admissibility of expert opinions:

 Thus, under Evidence Code sections 801, subdivision (b), and 802, the trial court acts as a gatekeeper to exclude expert opinion testimony that is (1) based on matter of a type on which an expert may not reasonably rely, (2) based on reasons unsupported by the material on which the expert relies, or (3) speculative.  Other provisions of law, including decisional law, may also provide reasons for excluding expert opinion testimony.

Following this test, the Supreme Court found that the trial court had properly excluded Skorheim’s opinions. The trial court had concluded that Skorheim’s opinions, based on comparisons to six much larger companies, were speculative. There was no abuse of discretion; the ruling was not irrational or arbitrary and was based on proper legal grounds.

The impact of this unanimous Supreme Court decision should be widespread. It will be raised as a challenge to expert opinion in many cases in which plaintiffs seek damages for future economic losses, whether lost wages in a personal injury claim or lost business profits in a commercial dispute.  But given the opinion’s broad language regarding the evaluation of expert testimony by trial courts, this case will be cited in a variety of contexts. Sargon makes clear that it is not up to a jury to decide whether a reasonable basis exists for an expert’s opinion. Before that opinion is presented to the jury, a trial judge must first evaluate that opinion and exclude it, if it is (1) based on matter of a type on which an expert may not reasonably rely, (2) based on reasons unsupported by the material on which the expert relies, or (3) speculative. Simply causing California state court judges to reevaluate their role in this process may be the biggest impact of the Sargon decision.



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