The Franchise Memorandum

A federal court in South Dakota recently denied a motion to exclude a dealer's expert testimony in a dispute over lost profits resulting from the termination of a distributor agreement. Black Hills Truck & Trailer, Inc. v. Mac Trailer Mfg., Inc., 2014 WL 5782452 (D.S.D. July 10, 2017). MAC had entered into a written distributor agreement with Black Hills. Less than a year later, MAC sent Black Hills proposed modifications to the agreement and required Black Hills to accept the modifications. Black Hills filed a lawsuit in response, alleging that MAC's actions constituted a wrongful termination. MAC and joined defendant Siouxland later moved to exclude the testimony of an expert Black Hills had retained to testify as to its lost profits resulting from the termination.

In support of their position, MAC and Siouxland took issue with: (1) the original data applied to the expert's formula for lost profits; (2) the expert's "blind trust" in Black Hills' representations; and (3) the expert's "utterly unreliable" methodology. The court disagreed with all three arguments. The court found that factual objections to the original data were better addressed during cross-examination. Additionally, the court acknowledged that Black Hills was in the best position to provide the expert with the necessary factual information. Further, the court held that the expert's method of subtracting variable expenses from gross profits was a proper methodology commonly seen in calculating lost profits. Finally, and importantly, the court recognized that it was impossible to create a forecast without some degree of speculation. Therefore, the court used its wide discretion to allow the expert testimony, finding that the benefit to the jury of the testimony was far more probative than prejudicial.