The Service Source v. Office Depot
Contract Termination Damages for Defense
In 2004, The Service Source, Inc. (TSS), filed in a lawsuit federal court for wrongful contract termination damages against Office Depot. TSS claimed that it had a valid contract to refer new customers to Office Depot’s business contract program, which provides discounts, free shipping, and other services to medium and large businesses. TSS would generate the customer referrals through telemarketing. TSS claimed that it had suffered damages in the form of future lost profits. Office Depot responded that the contract was unauthorized and invalid, and that in any case the TSS damage claim was unfounded.
When TSS submitted a damages expert report claiming nearly $40 million in discounted future lost profits, Office Depot turned to applEcon to prepare damages rebuttal testimony. applEcon had a few months to analyze and critique the plaintiff’s damage study, and to prepare its own calculations. applEcon also provided support for a Daubert motion to disqualify the plaintiff’s expert and participated in preparations for taking the plaintiff expert’s deposition. For trial, applEcon worked with a graphics firm to prepare over 50 trial demonstratives, provided support at trial, and presented expert testimony to the jury.
This case focused on the “reasonable certainty” standard for damage calculations. Plaintiff’s expert forecast revenues and expenses for each year into the infinite future, and then calculated a discounted present value of about $40 million. As a basis for these forecasts, plaintiff had only nine months of historical data. applEcon analyzed the statistical and economic methods, the underlying assumptions, the data validity and the plaintiff’s formulas. Because of the long time horizon and the paucity of historical performance data, applEcon’s critique focused on the lack of scientific reliability.
applEcon’s rigorous analysis and fact-based approach allowed us to present corrections for essentially every aspect of the plaintiff’s expert’s report, ranging from the method for calculating compounded growth rates to more realistic customer attrition rates and a correct analysis of inflation and discounting. After correcting plaintiff’s numerous errors, applEcon’s expert testified that under the “reasonable certainty” standard damages were at most $2.5 million, and more likely were less than $1 million.
Full Case Name: The Service Source, Inc. F/K/A Midwest Transit Corporation v. Office Depot, Inc., No. 02-73361 (U.S. Dist. Ct. Eastern Michigan Southern Division)
Year: 2005
Case Number: 02-73361