Beyoncé. Lebron. Magic. With some celebrities and athletes, just their first name or nickname will do.
You never hear people say, "Cher? Cher who? What's her last name?"
The same goes for some appellate opinions. Take Miranda. Any cop movie invariably includes a scene where the cranky veteran chews out a younger officer for violating a suspect's Miranda rights. From Dirty Harry to 21 Jump Street, Miranda is as common in police movies as a car chase.
In the recent case of San Francisco Print Media Co. v. Hearst Corp., 2020 WL 502991 (January 21, 2020), the California's Court of Appeal affirmed the trial court's granting of the defendant's Sargon motion to exclude the plaintiff's expert witness.
A Sargon motion?
That's right. For California litigators, Sargon has become the Beyoncé of expert witness admissibility motions. But did Sargon change the landscape of expert admissibility that much?
The short answer? Kind of, yes.
A quick reading of Sargon reveals that trial courts must act as "gatekeepers" to exclude expert opinions that lack an adequate foundation. Nothing new there. Back in 1978, Hyatt v. Sierra Boat, 79 Cal. App. 3d 325, 338 explained that "[a]n expert opinion must not be based on speculative or conjectural data."
So why are parties filing Sargon motions and not Hyatt motions? Sargon is more impactful because it expressly expands the scope of what a trial court can consider when determining the admissibility of expert opinions. Still, what makes Sargon slightly odd is that it did not really create new law. Sargon instead shed light on the utility of an Evidence Code section, Section 802, that had been hiding in plain sight all along.
Video: Expert Witness Declarations and Summary Judgment
To understand Sargon, it is useful to look at life pre-Sargon. Shortly before Sargon, California's Supreme Court was poised to examine the law of expert opinion testimony in a string of cases, In re Lockheed Litigation Cases, 126 Cal. App. 4th 271 (2005), petition for review granted, 110 P.3d 289 (Cal. 2005), petition for review dismissed, 83 Cal. Rptr. 3d 478 (2007). In Lockheed, the plaintiffs were current and former employees who claimed their illnesses were caused by exposure to toxic chemicals during their employment.
The trial court excluded testimony of the plaintiffs' expert on causation. The plaintiffs' expert principally relied on epidemiological studies that (1) included more chemicals than were at issue in the case, or (2) were conducted on animals. The Court of Appeal concluded that the trial court properly exercised its discretion under California Evidence Code section 801(b), which states as follows:
If a witness testifying as an expert, his testimony in the form of an opinion is limited to such opinion as: ...
(b) Based on matter (including his special knowledge, skill, experience, training, and education) perceived by or personally known to the witness or made known to him at or before the hearing, whether or not admissible, that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates, unless an expert is precluded by law from using such matter as a basis for his opinion.
The plaintiffs sought review by the California Supreme Court (which was granted) wherein they argued the following:
In California, the basic requirements for admissibility of expert testimony ... are: (1) the witness must be qualified as an expert on the subject matter (Evid. Code § 720); (2) the subject [matter] must be "sufficiently beyond common experience [so] that the opinion of an expert would assist the trier of fact" (Evid. Code § 801, subd. (a)); and (3) the expert's opinion must be "[b]ased on matter ... that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject matter to which his testimony relates, unless an expert is precluded by law from using such matter as a basis for his opinion." (Evid. Code § 801, subd. (b)).
There are no other requirements of the evidence code for expert testimony.
Opening Brief of Appellants at 22-23, Aguilar v. Exxon Mobil Corp., Lockheed Litig. Cases, 110 P.3d 289 (Cal. 2005) (No. B166347), 2005 WL 1871874 (emphasis added).
So what did the California Supreme Court do? Nothing. After the case was pending before the California Supreme Court for two years, it dismissed the case. Thereafter, two law professors who had written an amicus brief in Lockheed decided to convert their brief into an article. The article suggested that everyone in Lockheed forgot to read past Section 801 and thus failed to consider Section 802. According to the authors, Section 802 authorizes a court look beyond whether an opinion relies on the appropriate "type" of matter; courts can also consider the "reasons" underlying the opinion. See Imwinkelried & Faigman, Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony, 42 Loyola L.A. L.Rev. 427 (2009) (hereafter Imwinkelried & Faigman).
To illustrate their argument, Imwinkelried & Faigman explained how expert testimony is often a syllogism. They used the following as an example:
1. I am a practicing psychiatrist.
2. As reflected in the American Psychiatric Association's Diagnostic and Statistical Manual, there are criteria for diagnosing schizophrenia, that is, symptoms A, B, and C.
3. This patient's case history includes symptoms A, B, and C.
4. Therefore, this patient is probably suffering from schizophrenia.
Id. at 434.
Once an expert is qualified, most expert testimony follows the format above. Imwinkelried & Faigman then explained that expert testimony can be broken down into major and minor premises. Using the same example, the testimony's formula can be summarized as follows:
When it comes to testimony about an expert's "major premise," this has to do with an expert's generalizations, such as scientific propositions. Major premises are subject to the Kelly/Frey general acceptance test in California and the Daubert test in federal courts. Minor premises, on the other hand, deal with things that can be observed. For expert witnesses, these things need not be directly observed by the expert. Indeed, Section 801(b) provides that an expert's opinion may be based on "matter" that is "perceived by or personally known to the witness or made known to him at or before the hearing."
The minor premise is often comprised of case-specific facts the jury must decide—i.e., the minor premise is usually contested by the parties. Because judges are not to usurp the jury's fact-finding role, Imwinkelried & Faigman wrote that judges should limit their inquiry—when examining the acceptability of an expert's minor premise—to deciding whether the "type" of information the expert is relying on is acceptable. In other words, the inquiry should be properly limited by the language of Section 801(b); an expert's opinion must be based on "matter ... that is of a type that reasonably may be relied upon...."
But are judges similarly limited when contemplating an expert's major premise? Imwinkelried & Faigman said no. Imwinkelried & Faigman said that Section 802 provides the requisite authority for judges to impose restrictions on an expert's major premise. Section 802 provides that an expert "testifying in the form of an opinion may state on direct examination the reasons for his opinion ... unless he is precluded by law from using such reasons ... as a basis for his opinion." The language of Section 802 is broad. Imwinkelried & Faigman wrote that the word "reason" is expansive enough to contemplate the expert's "theory or technique," or put another way, the expert's major premise. They reasoned that while Section 801(b) limits a judge's inquiry as to the "matter" an expert bases his or her opinion, Section 802 permits an inquiry as to both " the reasons for his opinion and  the matter ... upon which it is based...."
In addition to Section 802 including language that speaks to both the expert's major and minor premises, it states that an expert may testify in the form of an opinion "unless he is precluded by law from using such reasons as a basis for his opinion." Evidence Code section 160 defines "law" to "include constitutional, statutory, and decisional law." The California Law Revision Commission Comment to section 160 states that "[t]his definition makes it clear that a reference to 'law' includes the law established by judicial decisions." Accordingly, Section 802 authorizes courts to make case law decisions to restrict an expert's "reasons" (i.e., the expert's major premise) for his or her opinion.
Now, Turning to Sargon
In Sargon Enterprises, Inc. v. University of Southern California, 55 Cal. 4th 747 (2012), Sargon Enterprises, Inc. (Sargon) was a small dental implant company with net provides of $101,000. Id. at 753. Sargon patented a dental implant that allowed a “one stage” implant. After the United States Food and Drug Administration (FDA) approved the implant for sale in the U.S., Sargon contracted with the University of Southern California’s (USC) School of Dentistry to conduct a five-year clinical study of the implant. Id. at 754. Three years into the study, Sargon sued USC for failing to present proper reports as its contract with Sargon required. Id.
Sargon retained an expert forensic accountant, James Skorheim, to testify on damages. Skorheim was prepared to testify that although Sargon’s net profits had only been $101,000 the year before it initiated litigation, Skorheim opined that Sargon’s lost profits “ranged from $220 million to $1.8 billion.” Id. at 755.
To support his opinion, Skorheim testified that he reviewed “litigation materials (including deposition transcripts and reports of USC’s damages experts), financial information from Sargon and its competitors (including annual reports), and market analyses of the global dental implant market prepared by Millennium Research Group….” Id. Skorheim explained that his opinion was based on a “market share” approach wherein he determined what share of the worldwide market Sargon would have gained had USC completed a favorable clinical study. Skorheim then calculated lost profits based on that assumed market share. Id.
To calculate damages, Skorheim identified the top six dental implant companies (the "Big Six," based on their market share) and assumed that Sargon would have joined them had USC not breached the contract. "Skorheim believed the Big Six were the top innovators ... but [this] was an inference he drew from reviewing ... the size and success of the companies in comparison to other, smaller companies." Id. at 756. In other words, the Big Six were market leaders because they were innovative. And Skorheim knew they were innovative because they were market leaders. His (circular) reasoning regarding the "Big Six" is illustrated below:
The problem with this analysis was that “by no objective business metric, such as sales or number of employees, was Sargon in fact comparable to the ‘Big Six.’” Id. at 777. The trial court did not buy it. The trial court illustrated the problem of Skorheim’s model as follows:
By way of example, assume that Miss Oklahoma entered into a contract to transport her to the ‘Miss America’ contest. Assume further that the carrier breached the contract and Miss Oklahoma missed the chance to compete. A jury could decide if she was damaged by the breach, to the extent damages could be ascertained. Could the jury go further and, based upon the testimony of experts, decide that, had she been allowed to compete, she would have defeated Miss Colorado for the title of Miss America, or decide that she would have been second, behind Miss Colorado and ahead of Miss Montana?
Id. at 765.
The Court of Appeal reversed the trial court's exclusion of Skorheim and California's Supreme Court granted USC's petition for review. The California Supreme Court first looked at the language of Section 801(b) to conclude that it affords a court to determine whether the matter relied on (1) is the type of matter that can be relied upon (in general), and (2) relates to the subject and opinion offered by the expert. The Court cited the language of Section 801(b) to support this analysis:
Evidence Code section 801, subdivision (b), states that a court must determine whether the matter that the expert relies is of a type that an expert 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.
Sargon, 55 Cal. 4th at 770, citing Lockheed Litigation Cases, 115 Cal. App. 4th 558, 564 (2004).
In addition to Section 801, Sargon cited Imwinkelried & Faigman's article for the proposition that Section 802 provides additional justification for a trial court to "inquire into the expert's reasons for an opinion." The Court explained that "[t]he reasons for the experts' opinion are part of the matter they are based just as is the type of matter. Evidence Code section 801 governs judicial review of the type of matter; Evidence Code section 802 governs judicial review of the reasons for the opinion." By allowing an inquiry as to an expert's reasons, a trial court is permitted to examine whether there is actual support for the expert's opinion: "[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." Id. at 771, citing General Electric v. Joiner, 522 U.S. 136, 146 (1997). The Sargon Court thus announced the following rule:
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.
Id. at 771 - 772.
The Sargon Court cautioned that a trial court's "gatekeeping" role does not "involve choosing between competing expert opinions." Id. at 772. Instead, "the court must simply determine whether the matter relied on can provide a reasonable basis for the opinion or whether the opinion is based on a leap of logic or conjecture." Id. "The goal of trial court gatekeeping is simply to exclude 'clearly and unreliable' expert opinion." Id., citing Black et al., Science and the Law in the Wake of Daubert: A New Search for Scientific Knowledge, 72 Tex. L. Rev. 715, 788 (1994). Citing the Supreme Court in Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999), the Court explained, "[i]n short, the gatekeeper's rule 'is to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.'" Sargon, 55 Cal. 4th at 772.
An Abuse of Discretion Standard (Sort Of)
The Court explained that, except when a trial court bases its ruling on a conclusion of law, appellate courts are to review a ruling excluding an expert witness for abuse of discretion. Id. at 773. But the Court cautioned that a trial court's discretion "is not unlimited, especially when ... its exercise implicates a party's ability to present its case." Put another way, "the trial court's discretion is circumscribed; it must be exercised within the limits the law permits." Id.
Turning to Skorheim's opinion, the Court affirmed the trial court's exclusion of his testimony. Looking first the lost profits, the Court reiterated the rule that with respect to unestablished businesses (like Sargon), "'damages for prospective profits that might otherwise have been made from its operation are not [generally] recoverable for the reason that their occurrence is uncertain, contingent and speculative.'" Id. at 774, citing Grupe v. Glick, 26 Cal. 2d 680, 692 - 693 (1945). Instead, "'anticipated profits dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability.'" Id. "'Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. The law requires only that some reasonable basis be used, and the damages may be computed event if the resulted reached is an approximation.'" Id., citing GHK Associates v. Mayer Group, Inc., 224 Cal. App. 3d 856, 873 - 874 (1990).
Turning to Skorheim's analysis, the problem the trial court identified was that he based Sargon's profit projections on data that was "in no way analogous" to Sargon. Id. at 776. The Court affirmed the trial court's exclusion because it was not "[b]ased on matter ... that is of a type that reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates." Cal. Evid. Code § 801(b).
The Court pointed out that Skorheim's market share approach might be appropriate in another case, but his conclusion that Sargon was comparable to the "Big Six" was not. Skorheim's analysis of the "Big Six" was too problematic:
[Skorheim] admitted that by no objective business metric, such as sales or number of employees, was Sargon in fact comparable to the "Big Six." Instead, he based his comparison solely on his belief that Sargon, like the "Big Six," and unlike the rest, was innovative, and that innovation was the prime market driver.... Skorheim's reasoning was circular. He concluded that the "Big Six" were innovative because they were successful, and that the smaller companies (excluding Sargon) were not innovative because they were less successful.... [H]e said that the smaller companies were smaller because they were not innovative.
Id. at 777.
Accordingly, in addition the fact that the matter was not the "type" that could be reasonably relied on (per Section 801), the Court further concluded that Skorheim's faulty reasoning was grounds for exclusion (per Section 802):
An accountant might be able to determine with reasonable precision what Sargon's profits would have been if it had achieved a market share comparable to one of the “Big Six.” The problem here, however, is that the expert's testimony provided no logical basis to infer that Sargon would have achieved that market share. The lack of sound methodology in the expert's testimony for determining what the future would have brought supported the trial court's ruling.
Id. at 781.
Post-Sargon: San Francisco Print Media Co. v. Hearst Corp., 2020 WL 502991 (January 31, 2020)
In Print Media, the plaintiff San Francisco Print Media owned The San Francisco Examiner (the "Examiner") and it sued The San Francisco Chronicle's (the "Chronicle") corporate owner, the Hearst Corporation. The Examiner claimed that it sold print advertising at prices that violated California's Unfair Practices Act (UPA) and Unfair Competition Law (UCL). The gravamen of the Examiner's complaint was that the Chronicle was underpricing its print advertising to harm the Examiner. Id. at *1.
For the Examiner to prevail on its claims under the UPA, it had to show that the Chronicle (1) sold advertising below-cost, and (2) did so with the purpose of injuring competitors or destroying competition. With respect to the first element, the UPA employs a "fully allocated cost standard" to determine a below-cost sale. Under this standard, cost is comprised of (1) the initial expense of producing the article, and (2) its share of the load of carrying on the business through which it is sold. Id. at *3, citing Pan Asia Venture Capital Corp. v. Hearst Corp., 74 Cal. App. 4th 424, 432 (1999). There is flexibility in this definition, but it is not unlimited: "[T]here are many ways of fully allocating costs, [but] the possibilities are not without limitation. To be legally acceptable, the allocation of indirect or fixed overhead costs to a particular product or service must be reasonably related to the burden such product or service imposes on the overall cost of doing business." Id., citing Turnbull & Turnbull v. ARA Transportation, Inc., 219 Cal. App. 3d 811, 822 (1990).
The Examiner's expert, Richard Eichmann, first calculated the Chronicle's "fully allocated cost" for print advertising. Id. at *2. To do this, he first allocated one hundred percent of the following expenses as direct costs of print advertising: "production payroll, newsprint handlers payroll, production and newsprint and ink (N&I), N&I handlers payroll, supplements, editorial payroll, and editorial expense." Id.
When asked for details about these expenses, Eichmann conceded that "he did not know what some of these expenses were for and did no independent work to determine how they should be allocated," but that he relied on an analysis prepared by the Chronicle's Director of Finance, John Sillers. Id. Sillers' report purported to include an "analysis of costs" wherein he wrote that "the Chronicle 'needed to exercise greater rate discipline when selling advertisements.'" Id. at *3. Sillers looked at "various levels of expenses related to 'a print product,' compared that to an average rate per page the Chronicle was garnering, then determined what the Chronicle needed to charge on average to break even, meaning revenue would cover production and newsprint expenses." Id. The report included a spreadsheet that Sillers called "Breakeven Pricing." Id.
What did Sillers' report have to do with the UPA? According to Sillers, nothing. As the Court explained:
Sillers submitted a sworn declaration and deposition testimony that his analysis had nothing to do with the UPA, with which he was unfamiliar. Sillers explained his analysis was based partially on budget figures as opposed to actual results, and he did not recall his methodology or reasons for some of his decisions.
The trial court didn't buy Eichmann's opinion. The trial court granted the Chronicle's Sargon motion and excluded Eichmann's analysis. The court explained that he was "an economic consultant with no experience allocating costs for a subscription-based newspaper with paid advertising, lacked the 'foundational knowledge to conduct a cost analysis' and relied on Sillers's analysis without understanding its foundations or whether Sillers did a UPA costs analysis, which the evidence showed Sillers did not." Id.
Print Media on Appeal
The Court of Appeal affirmed the trial court's exclusion of Eichmann's cost analysis. Applying the proper abuse of discretion standard, the Court explained the problems with Eichmann's foundation:
[Eichmann's] analysis suffered from a clear foundational problem. Specifically, Eichmann's methodology included allocating 100 percent of seven categories of expenses as direct costs of print advertising. While Eichman had credentials as an economic consultant, he acknowledged he had no understanding of several of the cost categories and did no independent work to determine how those categories should be allocated. Instead, he relied solely on Sillers's 2010 analysis to allocate these costs, without knowing the purpose of Sillers's analysis or having any awareness that Sillers testified his analysis had nothing to do with the UPA....
Ultimately, Eichmann's uninformed reliance on Sillers's analysis is not the mark of an opinion rooted in sound logic.
Id. at *5 (emphasis in original).
In many ways, the Court's opinion could have ended there. The Examiner's expert relied on a report for a proposition not found in the report. California Evidence Code section 801(b) requires that an expert's opinion be "[b]ased on matter ... that is of a type that reasonably may be relied upon by an expert in forming an opinion...." Eichmann's reliance on Sillers' report the proposition that Sillers performed a "fully allocated cost" analysis was meritless when Sillers' expressly disavowed doing a "fully allocated cost" analysis. Game, set, match.
But the Court's opinion did more. The opinion began by stating that "[t]his case turns in part on the application of Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal. 4th 747 (Sargon), which sets out standards concerning the admissibility of expert testimony." Id. at *1. The Court explained that Sargon permits an inquiry as to the "type" of matter relied on (under Section 801(b)) as well as an inquiry into the "reasons" for the expert's opinion (under Section 802). This is why Sargon changes the landscape. Expert opinion has always required an adequate foundation (when it comes to the "type" of evidence relied on), but Print Media repeats what is new: Sargon allows an examination as to the expert's "reasons" for the opinion.
Sargon motions are here to stay. The idea that the expert opinions lacking a proper foundation are inadmissible is nothing new, but Print Media shows us that the expanded scope of review endorsed by Sargon where trial courts can examine both the "type" of matter relied on along with the "reasons" for the opinion. This allowable inquiry broadened the court's gatekeeping role. Mastering Sargon can be both a shield (to ensure your expert opinions are admissible) and a sword (to exclude your opponent's expert).
David Sugden is a shareholder at Call & Jensen in Newport Beach, California.
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