SARGON ENTERPRISES v. UNIVERSITY OF SOUTHERN CALIFORNIA

Defendant and Appellant, University of Southern California, Petition for Review

Cal.March 18, 2011

§101550 von LY SUPREYE COuas WU No.S_ iea (Court of Appeal Nos. B202789 & B205034) ™ (Los Angeles Super. Ct. No. BC209992 (related to No. BC263701)) Map lg?"1g ony Fragen,IN THE SUPREME COURT Cerio oy we STEEL OU OF THE STATE OF CALIFORNIA ~~~... ‘Sr SARGON ENTERPRISES, INC., Plaintiff and Appellant, UNIVERSITY OF SOUTHERN CALIFORNIAetal., Defendants and Appellants. After A Decision By The Court Of Appeal Second Appellate District, Division One PETITION FOR REVIEW KATHLEEN M. SULLIVAN JOHN B. QUINN (S.B. No. 242261) (S.B. No. 090378) DANIEL H. BROMBERG MICHAEL E. WILLIAMS (S.B. No. 242659) (S.B. No. 181299) QUINN EMANUEL URQUHART MICHAEL T. LIFRAK & SULLIVAN LLP (S.B. No. 210846) 555 Twin Dolphin Drive,5' Fl. QUINN EMANUEL URQUHART Redwood Shores, CA 94065 & SULLIVAN LLP Telephone: (650) 801-5000 865 S. Figueroa Street, 10th FI. kathleensullivan@quinnemanuel.com Los Angeles, CA 90017 danbromberg@quinnemanuel.com Telephone: (213) 443-3100 johnquinn@quinnemanuel.com michaelwilliams@quinnemanuel.com michaellifrak@quinnemanuel.com Attorneys for Defendant and Appellant University of Southern California TABLE OF CONTENTS Page TABLE OF AUTHORITIES...0..cccccccccccceeeesescseeeeseseeenessesesseseesasaeenerees ii ISSUE PRESENTED o....ceccccccecececeseecscsesssescssseseacseseecacsesesesenessonerearacaees 1 INTRODUCTIONoocccccc ec cccccc cscs cececesenensscesessescsesssaeseceseesesersenesieessesares 1 STATEMENTOF THE CASE wu... cceccceceeecseesescsenecsseseesessseseseeeseneteceeeas5 REASONSFOR GRANTINGREVIEW uu.ceeeee reeseeeeteeneeneees 13 I. THE DECISION BELOW CONFLICTS WITH EVIDENCE CODESECTION 801 (D).......cccccceseseeseseerseteeeeeeeens 13 Tl. THE DECISION BELOW CONFLICTS WITH OTHER COURT OF APPEAL DECISIONS 0...cececeereeeeeenseeeereeas 16 A. The Decision Below Deepens The Conflict Over Whether Trial Courts Have Discretion To Review The Basis For Expert Opinions And To Exclude Those That Rely Upon Speculative Or Unreliable Methodologies ......ccccsessseseccecsseseescsesesssresecssenseseeerseeees 17 B. The Decision Below Creates A Related Conflict Over The Scope Of Trial Court Discretion To Exclude Expert Testimony On Lost Profits Where It Rests On Speculative Or Unreliable Comparison Between Dissimilar Companies.................23 Wl. THE SCOPE OF TRIAL COURT DISCRETION TO REVIEW AND EXCLUDE EXPERT OPINIONS THAT RELY ON SPECULATIVE OR UNRELIABLE METHODOLOGIES AFFECTS THE EFFICIENCY AND FAIRNESS OF CIVIL LITIGATION .....cccccecccseeeneeeeerenetenerees30 CONCLUSION 0.ccceecccscceeseneeseeeereeenecensenesesereesesessecessesseanessesaceeeetees35 CERTIFICATE OF COMPLIANCE 0. cccceccecesccesenseseseeecessesesaesenenseees36 TABLE OF AUTHORITIES Page Cases Berge v. Int'l Harvester Corp. (1983) 142 CaLApp.3d 152...cseescseesesenereeeeeeeeneneeaeacees 25, 26 Dee v. PCS Property Mgmt., Inc. (2009) 174 Cal.App.4th 390.0...ccccece cseeeeseeeeesesenseeeeeseneaeeessenes 20 G.M. Brod & Co. Inc. v. U.S. Home Corp. (7th Cir. 1985) 759 F.2d 1526 oo.ccsscsceesseeeteeeceeeeeeeenecsseeeeeesenes26 Herman SchwabeInc. v. United Shoe Mach. Corp. (2d Cir. 1962) 297 F.2d 906.00... eececeeseteeeeeeseeeesseneeseeeetseseseneeseasees 4,32 Huffman v. Lindquist (1951) 37 Cal.2d 465...ceceececeseecneeeeeecseneeesaseeseeteestseseeseeeseees 31 In re Lockheed Litigation Cases (2004) 115 Cal.App.4th 558 oo.ccce ccceeecneeecesaeeeeesseesseeeseseeenenes 19 In re Lockheed Litigation Cases (2005) 23 CalRptr.3d 762 oo... ccccccscsceesessssecsenseeeeseeeeretsesessneseeseneees20 Kelley v. Trunk (1998) 66 Cal.App.4th 519oececsseseeeeeceseeeseesseseseseeeeseeneees14 Kids’ Untverse v. In2Labs (2002) 95 Cal.App.4th 8700...scseseesecsetereeseneeeeeeseeeens 25, 26, 27 McNamara v. Wilmington Mall Realty Corp. (1996) 121 N.C.App.400 [466 S.E.2d 324]...eeceeeeeteteeeeeeees26 Miller v. Los Angeles County Flood Control Dist. (1973) 3 Cal.3d 689 oo...cececscescsessteescseeessesecsesetecseteestsessseseneeseeesenes31 Palm Medical Group, Inc. v. State Comp. Ins. Fund (2008) 161 Cal.App.4th 206.0...ccccseeceecteeseeeseeeeseneseneees 12, 28, 29 TABLE OF AUTHORITIES (continued) Page Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 CalApp.4th 281 ooocseesseneeereesteeeeeees 12, 24, 25 People v. Cole (1956) 47 Cal.2d 99 oooccseeeseneescsecseseneetseseiseessseesssseseesaeseeaeeees 15 Roberti v. Andy's Termite & Pest Control (2003) 113 CaLApp.4th 49300eeseee ceeeetesaetensseneees 18, 21, 22 Roscoe Moss Co.v. Jenkins (1942) 55 CalApp.2d 369 oo. ieccccssecsesceecescescerssesseecseeteseeeseseeeses15 Sanchez-Corea v. Bank ofAmerica (1985) 38 Cal.3d 892 ooocseeeeceresseseeecneesesecsensssecnesessseeeseneesesaeenees26 Smith v. ACandS, Inc. (1994) 31 Cal-App.4th 77occcecece cesses sssseesseseseeseessseeeeeenes21 Westbrooksv. California (1985) 173 Cal.App.3d 1208 woocececseceersceceetsssseseneraseseeeates 15 Westrec Marina Mgmtv. Jardine Ins. Brokers Orange County, Inc. (2000) 85 Cal.App.4th 1042 0...eeece eseesereceeeseeenaneeneetes 20, 21 William Inglis & Sons Baking Co. v. Cont’l Baking Co. (9th Cir. 1991) 942 F.2d 1332, judg. vacated in part (9th Cir. 1992) 981 F.2d 1023 woeesesesecsseeesseeeceeesetetsenetseeeeeeees26 Statutes Evidence Code, § 801, subd.(a)... ccceeeescesseseeececeecsesseeeesenseecsenseeeeate15 Evidence Code, § 801, subd. (D) oe.eecseessssseeeceesseeseeseeereeseeeeeaees passim Evidence Code, § 802 .0...ccscccscesessesensesesssseescesseesesseenseseesessseesssaseesseeesseas 15 iii TABLE OF AUTHORITIES (continued) Page Evidence Code, § 803... ccccesceesessssesseeesseeesceseseeseseeseenecaeeaseecseseseessteaeens 16 Misc. Armstrongetal., Effective Introduction of Evidence in Cal. (Cont.Ed.Bar 2d ed. 2011) Expert Witnesses, § 24.25... cececcececssesseeseeseseeeneeeseesesesssessenseenss 17, 18 Cal. Law Revision Com. com., 29B pt. 3A West’s Ann. Evid. Code (2009 ed.) foll. § 801 occccceee cs cereceeseseeceetetecserarseeeeenes 13, 14,15 Cal. Expert Witness Guide (Cont.Ed.Bar 2d ed. 2010) § 4.94 ...ccccccccccccccssecsseecesssesssesetessesssecees 18 Caufield, The Role of Expert Testimony in Evidentiary Law Cases in New Developments in Evidentiary Law IN California (2000) 0... ccecccceseesesecssesseseeeesesseseeeesessessccseessseseres 17, 18 3 Faigmanet al., Modern Scientific Evidence, Medicine Toxicology & Epidemiology (2009-2010) § 22:10 oeecccccccccsseseccssccssessecessensesssseesseecsescesscrsuceaseraeeeas 18 Faigman & Imweinkelried, Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony (2009) 42 Loy. L.A. L.Rev. 427.00... 15, 16, 30 Gross, Expert Evidence (1991) Wis. L.Rev. 1113ciesceseceeesseeeeseeceerseseeaeeneteteseenes31 iv TABLE OF AUTHORITIES (continued) Page Hill et al., Increasing Complexity and Partisanship in Business Damages Expert Testimony: The Need for a Modified Trial Regime in Quantification of Damages (2009) 11 U. Penn.J. Bus. L. 297 ooo. ccccccccceseessecceceseenseeentens 31, 33 1 Jefferson, Cal. Evidence Benchbook(Cont.Ed.Bar4th ed. 2010) Opinion Testimony From Expert and Lay Witnesses, § 30.40......18 Lloyd, Proving Lost Profits After Daubert: Five Questions Every Court Should Ask Before Admitting Expert Testimony (2007) 41 U. Rich. L.Rev. 379 oo.cecece neeesecenseseceseneracecassenseetares32 Posner, The Law and Economicsof the Economic Expert Witness (1999) 3 J. Econ. Persp. 91cccee ceseseeeeeseceeeeseeessesersneneeneees 29, 33 PriceWaterhouseCoopers, Daubert Challenges to Financial Experts: A Ten-Year Study of Trends and Outcomes 2000-2009.........ccccee33 Tomlin & Merrell, The Accuracy and Manipulability of Lost Profits Damages Calculations: Should The Trier of Fact Be “Reasonably Certain?” (2006) 7 Tenn.J. Bus. Li. 295 cececect cee rseneceeescstecseeeeseraes 32, 33 1 Witkin, Cal. Evidence (4th ed. 2000) Opinion Evidence, § 29 oo...cece escseesssseescssessceseseeececseseeesesetersseeseeas 15 1 Witkin, Cal. Evidence (2010 supp) Opinion Evidence, § 31 ou... ecccecescsessessereecsesesseeeteesseseetsoneeeneseeees 14 ISSUE PRESENTED Does Evidence Codesection 801(b) permit a trial court to review the basis of an opinion by an expert witness and to exclude that opinionif it is based on a speculative or unreliable methodology thatis incapable of assisting the jury? INTRODUCTION In this case, an expert witness opined that the University of Southern California (“USC”) faced the staggering sum of$1.2 billion in potential lost profit damagesforfailure to complete a 23-personclinical study of a new dental implant by a tiny startup company, Sargon Enterprises, Inc. (“Sargon”). The trial court ruled the expert’s opinion inadmissible after an eight-day evidentiary hearing, finding it based on “pure speculation”rather than any reliable methodfor calculating lost profits. (Tr. Ct. Opn. 2.)! A divided panel of the Court of Appeal reversed, holding that any assessment of whether the expert opinion wasbased on reliable methodology was a matterfor the jury. 1 Citations to the trial court’s opinion excluding the expert’s testimonyare to the page numbersin the opinion, whichis reprinted at pages 5328-60 of volume 21 of the appellant's appendix. The decision below thus raises the same important issue on which this Court granted review in the Lockheed Litigation Cases, $132167, but could not resolve in those cases because of recusals after briefing on the merits —namely, whethersection 801(b) of the Evidence Code authorizes California trial courts to assess the reliability of the methodologies that underlie an expert witness’s conclusions. Court of Appeal decisions were divided on that question then and continue to be divided on it now. This petition presents an excellent vehicle for this Courtto return to that issue and provide much-needed guidanceto the lowercourts. Thetrial court’s exclusion ruling here found the expert witness’s opinion inadmissible because it did not use any well-established or otherwise known orreliable technique for calculating lost profit damages. The expert’s opinion was not based on Sargon’s historical performance, for the expert’s lost profits projections “were wildly beyond, by degrees of magnitude, anything Sargon had ever experienced in the past.” (Tr. Ct. Opn. 9.) Nor was the expert's opinion based on comparison to any company remotely similar to Sargon, because the expert reverse-engineeredhis projections from the performanceof the six global leaders in the dental implant industry— multibillion-dollar corporations that were “worlds apart from Sargon” by every objective business measure.(Id. at p. 10.) Instead, the expert's opinion relied ona novel “market drivers” theory that he invented for this case —a theorythat posited that a single innovative dental implant without more could transform a tiny startup companyinto a global leader virtually overnight. The trial court found that “[t]his ‘Field of Dreams’ ‘trust me’ analysis forces us to assume, speculate and believe too much.” (Id. at p. 30, fn. omitted.) A divided panel of the Second District Court of Appeal found that the trial court had abusedits discretion in excluding the expert testimony. The majority held that evaluation of whether the expert's opinion had any reasonable basis was “better left for the jury’s assessment.” (Typed Opn.30-31.) The dissenting justice disagreed, finding the trial court’s carefully articulated 33-page order excluding the expert opinion “a well-reasoned and sound exercise of its discretion” that lacked “even a smidgeon of arbitrariness or capriciousness.” (Dissenting Opn.6, 7, fn. omitted.) The need for this Court’s guidance on the scope of trial discretion to admit or exclude expert testimony is especially acute in the context of expert opinions on lost profits damages. “[A] jury’s commonsenseis less available than usual to protect it” against such opinions, no matter how baseless or inflated, because complicated arrays of financial figures convey a “delusive impression of exactness.” (Herman SchwabeInc. v. United Shoe Mach. Corp. (2d. Cir. 1962) 297 F.2d 906, 912 [Friendly,J.].) As the dissenting justice below stated, “[t]he case before us exposesthe needfor a clear statement from our Supreme Court to render guidanceto trial and appellate courts as to the role of discretion in evidentiary rulings regarding the necessary measure of proof to establish lost profit damages.” (Dissenting Opn.8.) Resolving this issue has great importance to the fairness and efficiency of civil litigation in California. Expert witness opinions play a crucial role in a broad rangeof civil cases, and expert testimony on damages is presented in nearly every case in which a substantial recovery is sought. If experts are permitted to speculate wildly about lost profits damagesas the expert did here, andjuries are thusleft free to renderstaggering verdicts, many defendantswill be forced to accept extortionate settlements rather than take therisk of goingto trial in bet- the-company (or bet-the-university) cases. This case is a perfect example: the $1.2 billion in damages sought against USC based upon the testimony of Sargon’s expert would devastate the University’s endowmentandforce severe cutbacks in its educational operations. This Court should grant review to address the important question whether the California Evidence Codegivestrial courts the discretion to prevent such unjust results by reviewing the basis for expert witness opinions and excluding those that are based on a speculative or unreliable methodology or are otherwise incapable of assisting the jury. STATEMENTOF THE CASE This case arises from a long-running dispute over USC’s 1996 agreementthat its Dental School would conduct a 23-patient, five-year clinical study of a new dental implant developed by Sargon. In 2003, a jury found that USC had breached the agreement and awarded Sargon $433,000 in damages. (Typed Opn.2.) This awarddid not include any prospective lost profits because the prior trial court had held that Sargon hadfailed to raise a genuine issue concerning foreseeability, a prerequisite for such consequential damages. (Ibid.) On appeal, the Second District held as a matter of law that there was sufficient evidence for a jury to concludethat lost profits were foreseeable, but noted that it was premature to conclude whetherlost profits could be established with reasonable certainty and remanded for further proceedings. (Id. at p. 3.) The Expert’s Testimony—On remand, Sargon sought to present expert witness testimony concerning lost profits from James Skorheim, whois a certified public accountant and lawyer, not an economist or dentist. (Typed Opn. 21.) Although Sargonis a small companythat has never had more than twenty employeesor profits of more than $100,000 a year(id. at p. 23; Tr. Ct. Opn.10, fn.4), Skorheim opinedthat, but for USC’s breach, Sargon’s profits would haveincreasedin the time period from 1998 to 2009 to as much as $142 million a year (a 157,000% increase) and to no less than $26 million a year (a 29,000% increase). (Typed Opn.25, 27; 40AA10248, 10251.) Based upon these projected increases in profits, Skorheim calculated Sargon’s total lost profits during the time period to be as high as $1.18 billion and noless than $220 million. (Typed Opn.25.) Skorheim did notbasehis calculations upon extrapolation from Sargon’shistorical sales and revenues, which he deemedirrelevant to his analysis (Tr. Ct. Opn.8-9 & fn.2), or from the growth pattern of any other dental implant companythat began froma size or budgetsimilar to Sargon’s—the typical starting points for calculating future lost profits. Instead, Skorheim based his calculations upon the assumption that, if only USC had completedits study, by 2009 Sargon would have obtained the same market share as oneof the six global leaders in the dental implant industry, each of which is a multinational, multibillion- dollar corporation with annual revenues and profits hundredsif not thousandsof times greater than Sargon. (Typed Opn.23, 25.) Skorheim based his assumption that Sargon would have become a market leader upon a “market drivers” theory he invented for this case. Although he admittedly had no expertise in the dental implant industry, he hypothesized, based uponhis review of industry studies and annualreports as well as three interviews, that innovation wasthe key “market driver” in the dental implant industry and that the market share of each of the dental implant industry leaders correspondedto its relative innovativeness. (Jd. at pp. 21-22.) Skorheim then opinedthat, if Sargon’s implant were “revolutionary,” it would have obtained a 20% market share, resulting in lost profits of $1.2 billion; if Sargon offered a “substantial” innovation, it would have obtained 10% of the global market, resulting in lost profits of $600 million; and if Sargon madea “good”or “meaningful contributi[on],” its market share would have been 5% or 3.75%, resulting in lost profits of $315 million or $220 million respectively. (Id. at p. 25; Trial Ct. Opn. 4-5.) Skorheim admittedly offered no definition of or standards for distinguishing amongthese levels of innovation. (Typed Opn.25; Tr. Ct. Opn. 16-18.) In addition, in calculating Sargon’s lost profits, Skorheim assumedthat Sargon’s revenue in 1998 would have doubled absent a breach, that Sargon’s revenues would ramp up smoothly without any significant competitive response from existing market leaders, and that its profit margin would jump from 5% to the 30% enjoyed by those leaders. (Typed Opn.27; Trial Ct. Opn. 8-9 & fn.2.) The Trial Court’s Ruling—USC moved in limine to exclude Skorheim’s testimony, and the trial court conducted an eight-day hearing in which the bases for Skorheim’s opinions were thoroughly examined.(Tr. Ct. Opn. 4; 4RTJ1 to 11RT 2069.) Concludingthat these opinions were too baseless and speculative to admit even with all inferences drawnin their favor, the trial court excluded Skorheim’s testimony, setting forth its reasons in a detailed 33-page opinion. First, the trial court found that Skorheim’slost profit calculations were not based uponhistorical performance, but rather “are wildly beyond, by degrees of magnitude, anything that Sargon had ever experiencedin the past.” (Tr. Ct. Opn. 9.) Far from extrapolating from historical performance, the court found that Skorheim calculated lost profits by determining what Sargon’s market share supposedly would be in 2009 and then assumingthat its market share would “ramp up” accordingly. (Id. at pp. 6-9 & fn.2.) Second, thetrial court found that Skorheim had improperly failed to compare Sargon to similarly situated companies, another typical basis for calculating lost profits. Instead Skorheim compared Sargon with companies that were, in the court’s words, “worlds apart from Sargon” by every objective business measure—giant multinational corporations with “employees in the thousands and budgets in the billions.” (Id. at p. 10 & fn.4.) The court observedthat ”[t]he only thing these established companies have in commonwith Plaintiff is that they all sell or make dental implants.” (Id. at p. 10) Third, the trial court found that Skorheim’s opinionfailed to give the jury any useful guidance, for it would have required the jury to pick among the four categories of innovativeness to determine projected market share, but provided “no rational standardsfor the jury to follow in choosing.” (Id. at p. 18.) This feature of Skorheim’s opinion “‘relegate[d] the question of determining potentially more than a billion dollars in damages to pure speculation.” (Id. at p. 21.) Fourth, the trial court found that Skorheim lacked any expertise for determining the importance of innovativenessto dental implants or 10 for assessing relative innovativeness of the Sargon implant. (Id. at pp. 17, 23.) The court noted that Skorheim’s “market drivers” analysis rested only upon “what he hasreadin the lay press and learned from informalinterviews” with Sargon’s principal and others. (Id. at p. 24.) Fifth, the trial court found that Skorheim’s testimony rested on arbitrary and unfounded factual assumptions, including that Sargon would be able to make a “seamless transition” from a three-person operation to a multimillion-dollar international corporation (id. at p. 28), and that the existing multibillion-dollar market leaders would “just go quietly” rather than compete in response(id. at p. 29). Finding each of these deficiencies fatal, the court excluded the testimony as inadmissible under Evidence Codesection 801(b). The Court OfAppeal Decision —Onappeal, a divided panelof the Second District reversed the trial court’s inadmissibility ruling for abuse of discretion. The majority did not consider the reasonableness of Skorheim’s “market driver” analysis or discuss any of thetrial court’s specific objections to Skorheim’s unfounded assumptionsor questionable methods. Instead, the majority noted that “[t]echnical 11 arguments about the meaning andeffect of expert testimony on the issue of damagesare best directed to the jury” (Typed Opn.19, citation omitted), and stated simply that “[w]e have carefully reviewedthetrial court’s criticisms of Skorheim’s proffered testimony and concludethey were betterleft for the jury’s assessment”(id. at pp. 30-31). The majority rejected USC’s argument that Skorheim’s opinion wasproperly excluded becauseit was based on a comparison to non- comparable companies,like the expert opinion that Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, found inadmissible because it compared a small ice cream parlor to the national Friendly’s chain. Without explanation, the majority asserted that Skorheim’s opinion was morelike the one found admissible in Palm Medical Group, Inc. v. State Compensation Insurance Fund (2008) 161 Cal.App.4th 206, even thoughthat opinion had simply compared a Fresno occupational medical clinic to other, similarly sized medical providers serving similar patient populations in the same city. (Typed Opn.30.) Justice Johnson dissented. Noting that admissibility of expert opinion evidence is committed to the discretion of trial courts, and that 12 nothing in the trial court’s “reasonable, straightforward and clearly articulated evidentiary ruling” wasarbitrary, capricious, or beyond the bounds of reason, he concluded that the exclusion of Skorheim’s testimony should have been upheld. (Dissenting Opn.7; seealso id.at pp. 1-6.) He criticized the majority for “ignoring the function of discretion in trial court evidentiary rulings” and “usurp[ing] the functionof the trial court.” (Id. at p. 7.) The majority’s approach, he observed, “dangerously erodesthe function ofthe trial court in making evidentiary rulings on lost profit damages.” (Id. at p. 8.) REASONS FOR GRANTING REVIEW I. THE DECISION BELOW CONFLICTS WITH EVIDENCE CODESECTION801(b) In the Lockheed Litigation Cases, this Court granted review to resolve whether section 801(b) of the Evidence Code permitsa trial court to review the basis for an expert witness opinion and to determineif it rests upon reliable methodology. The same question is presented here and continues to warrant this Court’s review. Section 801 of the Evidence Code “sets the standard for the admissibility of [expert opinion] testimony.” (Cal. Law Revision Com. 13 com., 29B pt. 3A West's Ann. Evid. Code (2009 ed.) foll. § 801, p. 25.) Section 801(b) limits expert testimony to opinionsthat are based upon “matter... that is of a type that reasonably may be relied upon by an expert in forming upon the subject to which his testimony relates.” (Evid. Code, § 801, subd. (b), italics added; see Kelley v. Trunk (1998) 66 Cal.App.4th 519, 524; 1 Witkin, Cal. Evidence (2010 supp.) Opinion Evidence, § 31, pp. 158-59.) The purpose of this requirement is to “assure[] the reliability and trustworthinessof the information used by experts in forming their opinions.” (Cal. Law Revision Com. com., supra, foll. § 801, p. 26.) Section 801(b) thus contemplates that trial courts will play a crucial gatekeeping role in admitting or excluding expert witness testimony, reviewing the methodologies underlying expert opinions and excluding them unless they are “of a type that reasonably may be relied upon.” (Evid. Code, § 801, subd. (b), italics added.) Accordingly, section 801(b) prohibits admission of opinions that are based upon “irrelevant and speculative matters,” such as a comparison among matters “if the matters compared are not reasonably 14 comparable.” (Cal. Law Revision Com. com., supra, foll. § 801, p- 25, describing Roscoe Moss Co.v. Jenkins (1942) 55 Cal.App.2d 369.) Theinterpretation of section 801(b) as conferring upon thetrial court such a gatekeeping role over expert testimonyis reinforced by the surrounding portions of the Evidence Code. Section 801(a) permits experts to offer opinionsonly if they are “[rJelated to a subject thatis sufficiently beyond commonexperiencethat the opinion of an expert would assist the trier of fact.” (Evid. Code, § 801, subd.(a), italics added; see People v. Cole (1956) 47 Cal.2d 99, 103; Westbrooks v. California (1985) 173 Cal.App.3d 1203, 1210; 1 Witkin, Cal. Evidence (4th ed. 2000) Opinion Evidence, § 29, pp. 558-60.) Section 802 permits examination of “the reasonsfor” an opinion “andthe matter (including, in the case of an expert, his special knowledge, skill, experience, training, and education) upon whichit is based.” (Evid. Code, § 802; see Faigman & Imwinkelried, Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony (2009) 42 Loy. L.A. L.Rev. 427, 440-42 [noting that section 802, by permitting exclusion of expert opinions wherethe expert “is precluded by law from using such 15 reasons or matter as a basis for his opinion,” authorizes courts “to 4promulgate case law restrictions on an expert's reasons, ” citation and quotation omitted].) And section 803 provide that a court “may, and upon objection shall, exclude testimony in the form of an opinion that is based in whole orin significant part on matter that is not a proper basis for such an opinion.” (Evid. Code, § 803.) The Court of Appeal decision below conflicts with section 801 (b). In holding that the numerousdeficiencies of Skorheim’s testimony “were better left for the jury’s assessment” (Typed Opn. 30-31), the majority eliminated the crucial gatekeepingrole of the trial court. The conflict between this decision and section 801(b) warrants this Court’s resolution todayjustas it did at the time of the grant of review in the Lockheed Litigation Cases. Il. THE DECISION BELOW CONFLICTS WITH OTHER COURT OF APPEAL DECISIONS In addition to conflicting with the Evidence Code, the decision below deepens the conflict among Court of Appeal decisions that prompted this Court to grant review in the Lockheed Litigation Cases. The decision below also creates a conflict with other Court of Appeal 16 decisions as to whether expert testimony on lost profits damages may be based on comparisons among wildly dissimilar companies. This case is an excellent vehicle for resolving both conflicts. A. The Decision Below Deepens The Conflict Over Whether Trial Courts Have Discretion To Review The Basis For Expert Opinions And To Exclude Those That Rely Upon Speculative Or Unreliable Methodologies As this Court recognized in granting review in the Lockheed Litigation Cases, Court of Appealdecisions have divided overthe scope of trial court discretion to review the basis for expert witness opinions and to exclude those that rely upon speculative or unreliable methodologies. Because Lockheed was dismissed with the issue unresolved, the lower courts continue to be divided overthis issue. Numerous commentators have noted the persistence of this conflict in the lower courts. (See Armstrong et al., Effective Introduction of Evidence in Cal. (Cont.Ed.Bar 2d ed. 2011) Expert Witnesses, § 24.25, p. 378 [“[T]he courts of appeal have expressed different views on the extent to which §801 should be used to exclude expert opinion.” ]; Caufield, The Role ofExpert Testimony in Evidentiary Law Cases, in New Developments in Evidentiary Law in California 17 (May 1, 2010) p. 63 [noting that, since the Lockheed dismissal, lower courts are split over whether they should act as gatekeepers against unreliable expert testimony]; Cal. Expert Witness Guide (Cont.Ed.Bar 2d ed. 2010) § 4.9A, p. 68 [recognizing a conflict among Court of Appeal decisions concerning trial court authority to assess the reasonableness of expert medical witness testimony]; 3 Faigmanetal., Modern Scientific Evidence (2009-2010) Medicine, Toxicology & Epidemiology § 22:10, p. 146, fn.27 [noting conflict between the Lockheed Litigation Cases and Roberti v. Andy’s Termite & Pest Control, Inc. (2003) 113 Cal.App.4th 893]; 1 Jefferson, Cal. Evidence Benchbook (Cont.Ed.Bar 4th ed. 2010) Opinion Testimony From Expert and Lay Witnesses, § 30.40, p. 680 [same].) Some commentators have observed that only this Court can resolvethis persistent conflict. (See, e.g., Cal. Expert Witness Guide, supra, § 4.9A, p. 68 [“Ultimately the California Supreme Court must provide more guidanceonthis issue.” ].) Oneline of cases, exemplified by the Court of Appeal decisions in the Lockheed Litigation Cases themselves, holdsthat trial courts have broad discretion to review expert testimony for the substantive 18 reasonablenessof its underlying methodology. Inits first decision in Lockheed Litigation Cases, the SecondDistrict held that, under Evidence Code section 801, the matter relied upon by an expert “must provide a reasonable basis for the particular opinion offered, and that an expert opinion based uponspeculation or conjecture is inadmissible.” (In re Lockheed Litigation Cases (2004) 115 Cal.App.4th 558, 564.) In that case, the expert testified that exposure to five chemicals increased the plaintiffs’ risk of cancer based upon an epidemiological study. (ld. at p. 562.) Because the study dealt with exposure to thousandsof chemicals in addition to those at issue in the case, the trial court found that the expert lacked a reasonable basis for his opinion and excludedit under section 801(b) (id. at pp. 564-65), and the Court of Appeal affirmed on abuse of discretion review, noting that “[a] trial court exercises discretion whenruling on the admissibility of expert testimony under Evidence Codesection 801”(id. at p. 564). In a subsequentcase in the same coordinated proceedings, the trial court excluded expert testimony on causation based on animal studies and case reports as well as epidemiological studies concerning 19 multiple solvents. (In re Lockheed Litigation Cases (2005) 23 Cal.Rptr.3d 762,772.) The Court of Appeal again affirmed upon review for abuse of discretion. (Id. at pp. 771-74.) Moreover, the court reiterated that “[a] court determining whetherthere is a reasonable basis for an expert opinion under Evidence Code Section 801, subdivision (b), must examine the matter that the expert relied on in [] forming his or her opinion.” (Id. at p. 772, italics added.) Other Court of Appeal decisions similarly recognize thattrial courts have discretion to review the basis for expert testimony and to exclude that testimony if it relies upon an unreliable or speculative methodology. (See Dee v. PCS Property Mgmt., Inc. (2009) 174 Cal.App.4th 390, 405 [upholding exclusion of expert testimony on ground that “nothing in the record supports a causal connection between a minute amount of gliotoxin and any illness”]; Westrec Marina Mgmt. v. Jardine Ins. Brokers Orange County, Inc. (2000) 85 2 Petitioners cite this decision and review grant only to demonstrate the conflict among the Courts of Appeal and the necessity for further review, not as binding authority. 20 Cal.App.4th 1042, 1050-51 [upholding exclusion of expert testimony on ground that comparison of insurance program in marina with programsin other enterprises was unreliable]; Smith v. ACandS, Inc. (1994) 31 Cal.App.4th 77, 92-93 [upholding exclusion of expert testimony on ground that expert could not reasonably rely upon photographsto estimate asbestos dustlevels].) In the conflicting line of cases, exemplified by Roberti v. Andy’s Termite & Pest Control (2004) 113 Cal.App.4th 893, the Court of Appeal takes a morerestrictive view of the trial court’s discretion to exclude expert testimony,limiting the trial court to determining whether the expert has relied upon an acceptable type of underlying foundation without assessing the reasonablenessof the particular methodology on whichit relies. In Roberti, a medical expert testified that the plaintiff's autism was caused by exposure to a pesticide based in part upon animalstudies concerning the pesticide. (Id. at pp. 897-98.) Thetrial court excluded the testimony on the ground that animal studies provide an unreliable basis for inferring causation in humans.(Id. at pp. 898-99.) The Court of Appeal reversed, finding the exclusion an 21 abuseofdiscretion because animalstudiesare a type of evidence upon which medical experts may rely and any more searching analysis of the reliability of the studies was improper. (Id. at pp. 905-06.) The decision below deepensthis conflict. The trial court took the approach prescribed in the Lockheed Litigation Cases, stating that, in deciding whether to admit Skorheim’s testimony undersection 801(b), it “must examine the matter that the expert relied on in forminghis or her opinion.” (Tr. Ct. Opn.3, italics added.) But, as in Roberti, the Court of Appeal reversed, holding that the trial court abused its discretion by examiningthe underlyingbasis of the expert’s testimony and excluding it for relying upon a speculative methodology untethered to the usual basesfor calculating lost profits. (Typed Opn. 30-31.) Thus, the conflict among Court of Appeal decisions over the discretion of trial courts to review and excludeexpert testimonyfor the use of unreliable methodologies has deepened, renewing the urgency of the need for guidance from this Court. 22 B. The Decision Below Creates A Related Conflict Over The Scope OfTrial Court Discretion To Exclude Expert Testimony On Lost Profits Where It Rests On Speculative Or Unreliable Comparison Between Dissimilar Companies The decision below not only deepensthe very conflict that led this Court to grant review in the Lockheed Litigation Cases, but also creates a related conflict in the particular context of expert opinions on lost profits. The trial court rejected Skorheim’s comparison between Sargon, a tiny startup in the dental implant market, and established industry leaders, all of which hadsales, budgets, revenues and work forces thousandsor millions of times larger, and which thusdiffered from Sargon “by any relevant, objective business measure.” (Tr. Ct. Opn.12.) In reversing, the Court of Appeal decision becamethefirst to hold that expert testimony on lost profits may rest on a comparison between companiesof grossly dissimilar sizes and resources.3 ° The Court of Appeal noted that Skorheim did compare Sargon to one company, Astra Tech, that had a market share andsales that was only about ten times greater than Sargon’s. (Typed Opn. 30.) Butit failed to note that Astra Tech is a subdivision of Astra Zeneca, the largest company involved in the dental implant industry, with $19 billion in assets as of 1999—a figure millions of times greater than Sargon’s. (Id. at p. 23 & fn.8.) 23 The decision below thus conflicts with other Court of Appeal decisions concerning the proper scopeofintercompany comparisonsin expert testimony concerning lost profits. For example, in Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, the Fourth District held that expert testimony concerning lost profits was inadmissible and should have been excluded where the expert's calculations were based upon the performance of a much larger business. The plaintiff in Parlour Enterprises sought damages for interference with its attempt to open three “Farrell’s” ice cream parlor restaurants. (Id. at pp. 285-86.) The plaintiff's expert calculated the lost profits for these restaurants based in part upon the profitability of “Friendly’s,” a publicly traded chain of three hundred restaurants that serve ice cream as well as other food. (Id. at p. 290.) The Fourth District held this testimony speculative and inadmissible because the expertfailed to show thatFarrell's and Friendly’s, despite their similar offerings, were sufficiently similar in size, location, sales, budgets or other business features to warrant a comparison. (Ibid. [noting the expert’s “cursory description of Friendly’s business model failed to 24 establish its profit and loss experienceis sufficiently similar to Farrell’s to be relevant to the question of plaintiffs’ alleged lost profits” ].) Similarly, in Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, a toy company sought lost profits allegedly suffered when it was prevented from becoming a pioneering Internetretailer. In calculating the company’s lost profits, the company’s expert assumed that the company would haveachieved successsimilar to eToys, which began Internetretailing at the sametimethatthe plaintiff would have.(Id.at pp. 876-77.) The trial court found this comparison was based upon conjecture and entered summary judgment on damages.(Id. at p. 877.) The SecondDistrict affirmed. The Court of Appeal found that, even if the startup toy company would have been competitive with eToys and attracted similar venture capital, the expert’s assumption that the startup’s Internet business would have been profitable was “rife with speculation.” (Id. at pp. 887-88; see also Berge v. Int’l Harvester Corp. (1983) 142 Cal.App.3d 152, 162-63 [rejecting expert testimony that a small trucking company operating a single truck would have the same average net profit as giant national trucking companies as “entirely 25 speculative”|; cf. Sanchez-Corea v. Bank ofAmerica (1985) 38 Cal.3d 892, 907 [“evidenceof lost profits must be unspeculative and in order to supporta lost profits award the evidence must show with reasonable certainty both their occurrence and the extent thereof,” citation and quotation omitted].)4 These decisions cannot be reconciled with the decision below. While Parlour Enterprises found impermissibly speculative an expert's comparison of a small ice cream parlor with the three-hundred- restaurant Friendly’s chain, the decision below requires admission of an expert’s even more disparate comparison between Sargon and multinational companies hundreds and thousands of times larger. Similarly, while Kids’ Universe foundit speculative to assumethat a toy * Similarly, other jurisdictions require reasonable comparability betweenbusinessesforlostprofits calculations. (See, e.g., William Inglis & Sons Baking Co. v. Cont’l Baking Co., Inc. (9th Cir. 1991) 942 F.2d 1332, 1341 [requiring “meaningful economic similarity”], judg. vacated in part (9th Cir. 1992) 981 F.2d 1023; G.M. Brod & Co., Inc. v. U.S. Home Corp. (7Cir. 1985) 759 F.2d 1526, 1538-39 [“[T]he business used as a standard mustbe as nearly identical to the plaintiff's as possible,” citation omitted]; McNamara v. Wilmington Mall Realty Corp. (1996) 121 N.C.App. 400 [466 S.E.2d 324, 409] [rejecting comparison of small jewelry store to independentnational jewelers].) 26 company would achieve the same profitability as a toy company that began Internet retailing at the same time that the original company started, the decision below allowed plaintiff's expert to assume that Sargon wouldachieve the sameprofit margin as industry leaders with margins six times greater than Sargon’s. (See Tr. Ct. Opn. 8.) The passing citation to Kids’ Universe in the decision below cannot obscure the plain conflict between the holdingsin the twocases. Citing Kids’ Universe, supra, 95 Cal.App.4th atp. 884, the decision below notes that the testimony of Sargon’s expert is based upon “economic and financial data, market surveys and analyses, business records of similar enterprises, and the like.” (Typed Opn. 30.) But as Kids’ Universe rejected the comparison the expert in that case drew between the plaintiff there and internet retailer eToys, that decision clearly followed the Lockheed approachof accordingthetrial court discretion to assess the reasonableness of the specific methodology on which the expert relied, not merely the general type of method used (i.e., intercompany comparison). The decision below,by contrast, insists on the hands-off approach prescribed by the decision in Roberti. 27 Nor is Palm Medical Group, Inc. v. State Compensation Insurance Fund (2008) 161 Cal.App.4th 206 “more on point than Parlour Enterprises,” as the majority opinion incorrectly suggests. (Typed Opn. 30.) Palm Medical Group, like Parlour Enterprises and KidsUniverse, merely held that intercompany comparisons are admissible in expert lost profits testimony where the companies being comparedare similar in objective business measures like size, location, budgets, sales, revenuesand location. In Palm Medical Group, the expert calculated lost profits for a medical clinic in Fresno serving patients with worker's compensation insurance by comparingthatclinic with otherclinics in Fresno serving similar patients, and the decision specifically notes that the plaintiff “had the capacity to serve a similar volumeofpatients.” (Palm Medical Group, supra, 161 Cal.App.4th at pp. 227-28.) In other words, Palm Medical Group rested on the same approach that Parlour Enterprises found lacking: the expert calculated lost profits by comparing similarly sized businesses engagedin similar activities. Such an approachis a far cry from the one endorsed bythe decision below, in which the expert compared Sargon with multinational 28 corporations with personnel, budgets and revenues hundreds and thousandstimeslarger and profit marginssix times Sargon’s. Thus, in addition to conflicting with the Lockheed Litigation Cases and other decisions recognizing that experts have broad discretion to exclude unreliable or speculative expert testimony, the decision below conflicts with Court of Appeal decisions holding thattrial courts have discretionto reject expert lost profits opinions that compare businesses of significantly disparate size, sales, revenues, budgets, location and capitalization.’ This Court should grant review to resolve both the ° The decision belowalsoassertedthat thetrial court’s ruling “is tantamountto a flat prohibition on lost profits in any case involving a revolutionary breakthroughin an industry.” (Typed Opn.30.) Thatis incorrect. Sargon wasfree to engage an expert to extrapolate Sargon’s future projected growth from Sargon’s ownhistorical performance applying a reasonable growthfactor to accountfor increasedsales, or based on the growth patterns of similarly sized companies or larger companies whenthey wereat an earlier stage of development. Orit could have hired a venture capitalist or economist with experience with innovative small companies, rather than a lawyer-accountant with none. (See Posner, The Law and Economics ofthe Economic Expert Witness (1999) 3 J. Econ. Persp. 91, 94 [noting that the choice of an economist testifying outside his or herfield “implies that the lawyer was unable to find a knowledgeable economistwilling to testify in support of the client’s position”J.) 29 larger conflict and the related conflict involving the specific application of the general evidentiary issue in the lost profits context. Il. THE SCOPE OF TRIAL COURT DISCRETION TO REVIEW AND EXCLUDE EXPERT OPINIONS THAT RELY ON SPECULATIVE OR UNRELIABLE METHODOLOGIES AFFECTS THE EFFICIENCY AND FAIRNESS OF CIVIL LITIGATION In granting review in the Lockheed Litigation Cases, this Court recognized that the question of law raised here —whethertrial courts have discretion to review the underlying basis for expert witness opinionsandto excludethose that rest upon speculative and unreliable methodologies —is an important one warranting this Court’s attention. The sameis true today. The question is particularly important in the context of expert opinions on lost profits, for speculative and unreliable damage calculations in this context can have an even more pernicious impact on trial practice and the administration of justice than many other types of expert testimony. (See Faigman & Imwinkelried, supra, 42 Loy. L.A. L.Rev. at p. 445 [noting that the question of trial court discretion to review and exclude nonscientific expert opinions “is not 30 only recurring; it is of even greater practical importance than the admissibility standards for instrumentalscientific techniques”J.) Expert testimony is a ubiquitous aspect of California civil trial practice. (See, e.g., Gross, Expert Evidence (1991) Wis. L.Rev. 1113, 1119 [reporting study finding that expertstestified in over 86% ofcivil trials in California |.) As this Court has recognized,in civillitigation expert testimonyis often necessary to establish liability, particularly in areas such as productsliability and medical malpractice. (See, e.g., Miller v. Los Angeles Flood Control Dist. (1973) 8 Cal.3d 689, 702; Huffman v. Lindquist (1951) 37 Cal.2d 465, 473.) In addition, in almost every case in whichsignificant damagesare sought, expert testimony on damagesis presented. (See, e.g., Hillet al., Increasing Complexity and Partisanship in Business Damages Expert Testimony: The Needfor a Modified Trial Regime in Quantification of Damages (2009) 11 U. Penn.J. Bus. L. 297, 317-18 [discussing the growing market for expert testimony on damages].) Unreliable expert testimony creates a significant threat of erroneous outcomesandinjustice, especially with respect to damages. By definition, expert testimony concerns issues that are beyond the 31 common knowledge of jurors. (Evid. Code, § 801, subd. (a).) Consequently, as Judge Friendly observed, “a jury’s commonsenseis less available than usual to protect it” against unreliable expert testimony. (Herman Schwabe Inc., supra, 297 F.2d at p. 912.) This is particularly true in the context of testimony concerning damages because of the “delusive impression of exactness” that an array of figures can convey. (Ibid.; see also Tomlin & Merrell, The Accuracy and Manipulability of Lost Profits Damages Calculations (2006) 7 Tenn.J. Bus. L. 295, 298 [noting the tendencyof jurors to favor simple methodsof calculations].) Even when cross-examination discloses the defects in expert testimony concerning damages, jurors often accept the testimony anyway and renderexcessive verdicts. (See, e.g., Lloyd, Proving Lost Profits After Daubert: Five Questions Every Court Should Ask Before Admitting Expert Testimony (2007) 41 U. Rich. L.Rev. 379, 381-85 [collecting examples].) In addition, a meaningful threat of exclusion is needed to deter experts from improperly inflating their damage calculations. As numerous commentators have recognized, damage calculations are 32 easy to manipulate (see, e.g., Tomlin & Merrell, supra, 7 Tenn.J. Bus. L. at pp. 304-06, 314-15; Hill et al., supra, 11 U. Penn.J. Bus. L. at p. 358- 65), and experts frequently do so (see PriceWaterhouseCoopers, Daubert Challenges to Financial Experts: A Ten-Year Study of Trends and Outcomes 2000-2009 at pp. 6-7 [finding that 45% of challenges to financial expert witnesses are successful in whole or in part]). The threat of exclusion discourages such manipulation because exclusion of an expert’s testimony decreases their credibility and therefore their prospects for employmentin future cases. (See Posner, supra, 3 J. Econ. Persp. at pp. 93-94.) If trial courts are deprived of the discretion to exclude unreliable expert testimony, this check is removed, and the experts have the incentive to inflate their calculations in the hopes of eliciting huge verdicts and therefore attracting more retentions. (Tomlin & Merrell, supra, 7 Tenn.J. Bus. L. at p. 304.) Admission of speculative and unreliable expert testimony also distorts the litigation process. If plaintiffs are permitted to present inflated damagecalculations without regardto their speculativeness or unreliability, plaintiffs who canestablish liability will be encouraged to 33 go to trial rather than settle by the possibility that the jury will accept their calculations uncritically, turning their claims into a potentially winning lottery ticket. Conversely, the threat of huge, unfounded verdicts will deter many defendants from risking trial and force them to accept extortionate settlements worth much morethantheplaintiff's actual damagesin orderto avoid the risk of a devastating judgment. Moreover, even if a defendant chooses to accept that risk, the admission of unreliable and inflated expert testimony forces defendants to devote more resourcesto litigating the case to avoid the staggering judgmentthat might result from it. Thus, admission of speculative and unreliable expert testimony creates the risk of unjustly inflated damage awards, which in turn encourages unnecessary trials and excessive litigation as well as extortionate settlements. This Court should grant review to ensure that trial courts have neededdiscretion to exclude expert testimony under the clear requirements of the Evidence Code and thus to avoid such adverse consequences for the administration ofjustice. 34 CONCLUSION The petition for review should be granted. DATED: March 18 , 2010 Kathleen M.Sullivan (S.B. No. 242261) Daniel H. Bromberg (S.B. No. 242659) QUINN EMANUEL URQUHART & SULLIVAN LLP 555 Twin Dolphin Drive, 5th FI. Redwood Shores, CA 94106 Telephone (650) 801-5000 Facsimile (650) 801-5100 Respectfully submitted, ohn B. Quinn (S.B. No. 090378) Michael E. Williams (S.B. No. 181299) MichaelT. Lifrak (S.B. No. 210846) QUINN EMANUEL URQUHART & SULLIVAN LLP 865 S. Figueroa Street, 10th FI. Los Angeles, CA 90017 Telephone (213) 443-3000 Facsimile (213) 443-3100 Attorneys for Defendant and Appellant University of Southern California 35 CERTIFICATE OF COMPLIANCE (Cal. Rules of Court, rule 8.204) Pursuantto California Rule of Court 8.204, the foregoingpetition ‘is double spaced and printed in proportionally spaced 13-point Palatino Linotype typeface. It is 35 pages long and contains 6,568 words(excludingthetables,this certificate, and the proofof service). In preparingthis certificate, I relied upon the word count generated by Microsoft Word 2003. Executed on March 18, 2011, at Los Angeles, California. LbEGoodfyy hn B. Quinn 36 ADDENDUM Filed 2/9/11 Sargon Enterprises v. USC CA2/1 NOT TO BE PUBLISHEDIN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citingor relying on opinions notcertified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION ONE SARGON ENTERPRISES,INC., B202789, B205034 Plaintiff and Appellant, (Los Angeles County Super. Ct. No. BC209992) v. UNIVERSITY OF SOUTHERN CALIFORNIAetal., Defendants and Appellants. APPEALSfrom a judgment and orders of the Superior Court of Los Angeles County. Terry A. Green, Judge. Judgment reversed with directions; orders affirmed. Browne Woods George, Allan Browne, Eric M. George, Benjamin D. Scheibe, Robert B. Broadbelt and Ira Bibbero for Plaintiff and Appellant. Quinn Emanuel Urquhart Oliver & Hedges, Quinn Emanuel Urquhart & Sullivan, John B. Quinn, Michael E. Williams, Michael T. Lifrak, Kathleen M. Sullivan and Daniel H. Bromberg for Defendants and Appellants. The University of Southern California (USC) breached its contract with Sargon Enterprises, Inc. (Sargon), yet convincedthe trial court for the second time to exclude evidenceoflost profits on the ground it was speculative. We concludethe trial court erred by excluding Sargon’s evidence in that regard. Rather, the evidence provedlost profits with reasonable certainty. Accordingly, we again return the matterto the trial court for a newtrial on the issue of lost profits. With respect to the other issues raised on appeal, we affirm. Defendants filed a cross-appeal challenging the trial court’s award of attorney fees to Sargon. Wealso affirm asto that issue. I BACKGROUND This is the second appeal in this case. In 1991, Sargon obtained patents on a dental implant. Sargon desired that USC use the implant in teachingat its dental school, and USC requesteda clinical study be conducted to allow USCto provide academic support for the device. The implant had the approval of the United States Food and Drug Administration (FDA), permitting it to be sold and used in the United States. In November 1996,the parties entered into a Clinical Trial Agreement (CTA), intending to conducta five-year study of the implant. Over a year into the study, Sargon contended USC failed to deliver timely the promised reports and otherwise breached the CTA. On May7, 1999, Sargonfiled this action against USC and certain faculty members of USC’s dental school involved in the study. Sargon asserted claims for breach of contract, fraud, and other torts. USC cross-claimed for breach of contract. After Sargon’s tort claims and claims against the individuals were eliminated by demurrer and summary judgment, the remaining contract action against USC wastried in 2003. Before trial, the court ruled in limine, excluding evidence of Sargon’s lost profits on the ground they were not foreseeable to defendants. The jury awarded Sargon $433,000 in compensatory damagesonits breach of contract claim, and foundforit on USC’s cross-complaint for breach of the CTA. Thetrial court found USCto be the prevailing party because Sargon’s verdict was less than USC’s Code of Civil Procedure section 998 offer, and awarded USCattorney fees. (All undesignated section references are to the Code of Civil Procedure.) Sargon appealed the judgment, but USC did not separately appeal the judgment againstit on its cross-complaint. Wereversed, findingthe trial court erred in excluding evidence of Sargon’s lost profits on the grounds of foreseeability and remanded for a new trial on that issue. We also reversed the judgment of dismissal on Sargon’s fraud claims, and reversed the postjudgment orders awarding USCcosts and attorney fees. (Sargon Enterprises, Inc. v. University ofSouthern California (Feb. 25, 2005, B167519, B163707) [nonpub. opn.], p. 26 (Sargon J).) On remand,in April 2006, Sargonfiled a second amended complaint based on two contract and four tort theories. Sargon’s claim for breach of the covenant of goodfaith and fair dealing was dismissed by demurrer,its tort claims by summaryadjudication. and the case again proceededto trial on the breach of contract claim. The trial court again excludedin limine evidenceof lost profits. In August 2007,the parties stipulated to entry ofjudgment for $433,000 on the breach of contract claim, andthetrial court awarded attorney fees to one ofthe individual defendants who had been dismissed from Sargon’s second amended complaint and to Sargon onits contract claim. Sargon filed the present appeal. Defendants cross-appealed, challenging the award ofattorney fees to Sargon. Dr. Sargon Lazarof, the president and CEO of Sargon,first began placing dental implants in patients in his private practice in 1988 or 1989 after taking courses in implantology. He began to develop the Sargon implant, which could be implanted immediately following an extraction and contained both the implant andfull restoration. In the 1980’s, the standard implant was the Branemark implant developedat the University of Gothenburg in Sweden. The Branemark implant required severalsteps. First, surgery would place the implant in a healed extraction socket in the patient’s mouth; a second surgery would inspect the implantto see if it had properly integrated with the bone (a process knownas“‘osseointegration’’); last, a crown would be placed on the implant. Sargon’s implant wasa onestage implant: it expanded immediately into the bone socket with an expanding screw; this mechanism permitted the implant to be “loaded” with a crown the same day. In 1992, after obtaining a patent on the implant, Dr. Lazarof formed Sargon to develop, market, and sell the implant. After receiving FDA clearance, Sargon began marketing the implant in the United States. Dr. Marwan Abou-Rass, one of Dr. Lazarof’s professors at USC, contacted Dr. Lazarof to discuss the implant and receivedtraining in its use. After placing the implant in some of his own patients, Dr. Abou-Rass believed the implant should be used at USC, and approached Dr. Howard Landesman, the Dean of the USC dental school. Dean Landesman agreed with Dr. Abou-Rass’s assessmentthat the Sargon implant could change dentistry. Although USC hadan exclusive contract with Nobel Biocare requiring USCto use Nobel Biocare’s Branemark implant exclusively, an exception to the contract with Nobel Biocare permitted USC to study other implants. Dean Landesman proposed to Lazarof that USC conducta study to evaluate the Sargon implant because such a study would permit USC to determinefor itself that the implant could do “‘what it was supposed to do.’” If the study results were good, USC would be in a position to exercise its right to cancel its contract with Nobel Biocare and position itself as the premier institution associated with the Sargon implant. In early 1996, USC initiated a meeting with Sargon that was attended by Dr. Lazarof, Dr. Abou-Rass, Dean Landesman,and Dr. Robert Garfield, a dentist who worked for Sargon. Dean Landesmantold Dr. Lazarof if the implant worked as Sargon claimed, association with USC would put USC back in the numberoneposition it had once enjoyed amongdental schools. USC told Dr. Lazarofit would need a study to prove that the implant wassuccessful, and Dean Landesmantold Dr. Lazarof, “‘Give me one year, and I will give you the world.’” The one-year period was based onthe scientific consensusin the dentalfield that if an implant had notfailed after six months to one year, it was highly unlikely it would fail after that time. During the negotiations that led to the CTA,Dr. Lazarof stressed to USC the importance of a timely one-yearinterim report to Sargon’s marketing, and Sargon would need interim six-monthreports. 4 USC wanted to appoint defendant Dr. Winston W.L. Chee, director of implant dentistry at USC, to head the study. During the negotiations leading up to the CTA, Dr. Lazarofrealized that Dr. Chee harbored animosity toward him. Dr. Chee said to Dr. Lazarof, ‘Here you go, you are a general Practitioner, and I am the prostodontist, the university professor. I am specializing in restoring implants. You are a general practitioner in private practice and you have comeupwith this technique, and you want to come change the way USC doesdentistry, and through USC you want to change the whole world and the way they do implantology.’” When he learned that Dean Landesman and Dr. Abou-Rass wanted Dr. Chee to head the study, Dr. Lazarof became concerned and informed them that Dr. Chee did not like him, did not like the Sargon implant, and was committed to Nobel Biocare’s competing Branemark implantthat he had been working with exclusively for many years.! Dr. Lazarof told them that USC would be taking a big risk in appointing Dr. Chee, and asked whether USC would be responsible if Dr. Chee compromised the study. Dean Landesman and Dr. Abou-Rass assured Dr. Lazarof they would properly supervise Dr. Chee. In September 1996, USC appointed Dr. Lazarofclinical professor of dentistry. The purpose of the appointment was to permit Dr. Lazarofto train all faculty members to use the Sargon implant, in particular those professors participating in the study. According to Sargon, Dr. Chee objected to Dr. Lazarof’s appointmentas clinical professor and refused to be trained to use the implantor to allow the graduate students who were performingrestorations on study patients to be trained to use the implant. On November8, 1996, Sargon, USC and Dr. Chee entered into the CTA, in which USCagreed to conduct clinical trial of the Sargon implant. At a cost of $200,000, Sargon would fund the study of the implant at USC. The study would examine 40 1 In 1996, Dean Landesmanhadtold Dr. Lazarof that USC had an agreement with Nobel Biocare pursuant to which USC waspurchasingall of its implants for teaching from Nobel Biocare. Sargon alleged Nobel Biocare is the largest producer of implants in the world and Sargon’s biggest competitor, and stood to lose if the Sargon study confirmed the efficacy of the Sargon implant. implant sites, and covera five-year period so that the success of the implant could be evaluated. Dr. Chee was designated as principal investigator to oversee the study in accordance with the protocols set forth in the CTA. Defendant Dr. Hessam Nowzari, a professor at USC’s dental school, was to perform surgeries that were part of the study. Although USCrepresented that it had the expertise and qualifications to perform the study, according to Sargon, Dr. Chee had inadequate experience to conduct a clinicaltrial study, had never prepared a report for a clinicaltrial study, and was unfamiliar with the requirements for such reports. Pursuant to the CTA, USC and Dr. Chee agreed to prepare and submit, within 30 days of each June 30 and December 31 during the time the study was being conducted, a written report to Sargon detailing the studyresults. In addition, Sargon had the right to review and be presentat clinical procedures, and to meet and confer with Dr. Chee and other university employees involvedin the study; if Dr. Chee wasthe principal author, Sargon hadthe right to review and comment on any USCpublications regarding the study; otherwise, publications concerning the implant could not be disseminated without Sargon’s consent; and USC wasrequired to keep confidentialall information regarding the study. The CTAalso provided at paragraph 11.3 that USC and Dr. Chee jointly and severally represented that “[t]o their actual knowledge, without any duty to investigate, they know of no reason why Dr. Chee wil! not continue to serve as the Principal Investigator throughout the entire Research Period.” Dr. Chee signed the CTA both on behalf ofUSC and “individually, solely as to the representations, warranties and covenants contained in Section 11.3 hereof.” At the end of 1997, when he had notreceived any reports from the study, Dr. Lazarof asked Dean Landesman, Dr. Chee, and Dr. Nowzari for them. They told Dr. Lazarof that USC was goingto release the report orally at a USC periodontal symposium in February 1998 and at a Monte Carlo symposium in April 1998. Further, they would not provide Dr. Lazarof with a report until after the Monte Carlo symposium. At the February 1998 symposium, Dr. Chee reported a 100 percent success rate for the 6 Sargon implant. At that time, Dr. Nowzari gave Dr. Lazarofa letter for use in marketing the implant in Saudi Arabia. Theletter stated that “‘our animal and human studies conducted in USA and Europe confirm the superiority of the Sargon Dental Implant to our present system (Branemark System)’”andthat the “*Sargon tooth replacement system has been introduced at the USC School of Dentistry as the system of choice for patient care.” In March 1998, Dean Landesman and Dr. Chee sent Dr. Lazarofa letter advising him that USC had completedthe last of the implants called for by the study, and 16 monthsinto the study, there had not been a single failure. At the Monte Carlo symposium in April 1998, over 400 dentists and leaders of the dental profession attended. Sargon paid for the symposium ata cost of $172,000. At the symposium, Dr. Chee and Dr. Nowzari made very positive comments about the implant and stated that the one-year success rate was 100 percent. After hearing about the implant’s success, many of the dentists who attended the symposium asked Dr. Lazarof for a copy of the report and expressedinterest in using or distributing the implant. A book aboutthe implant, “The Immediate Load Implant System: Esthetic Implant Dentistry for the 21st Century,” was available that had been authored by Dr. Nowzari and two other dentists participating in the study. But when Sargon wasnotable to provide copies of the study report, Dr. Lazarof alleged Sargon lost credibility with dentists. Dr. Lazarof continued to ask Dean Landesmanfor the study report. In the Fall of 1998, he learned Dean Landesmanwasleaving the dental school and would be replaced by Dr. Gerald Vale. In the latter part of 1998, Dean Landesman and Dean Valetold Dr. Lazarof that Dr. Chee was causing the delay in the report because he wasrefusing to provide it. In February 1999, Dr. Lazarofreceived the first report. According to Sargon, the report failed to summarize results of the work in customary clinical format becauseit failed to contain sufficient and detailed information on the patients in the study; the report was unprofessional in appearance; it was not on USC letterhead; and it did not mention USC orstate that the study was being conducted by USC. Further, the study itself was not in accord with the protocol; medically inappropriate patients were admitted; and improper implant cement was used in numerouscases. Asa result, Sargon was notable to use the report to market the implant. Dr. Lazarof asked Dean Vale and Dean Landesmanto provide him with the patient records. In April 1999, Dean Vale and Dean Landesmantold him they could not get Dr. Chee to give them the records, and there was nothing they could do about it. Asa result, in May 1999, Dr. Lazaroffiled this action.” In July 1999, while this action was pending, Dr. Chee provided a second written report. Although it was printed on USC letterhead, the second report — accordingto Dr. Lazarof— sutfered from similar deficienciesas the first report. In addition, it was not signed by Dr. Chee and described problemsin patients that had not beenset forth in the first report. causing Dr. Lazarof to become suspicious that USC waseither describing problemsthat did not exist or was failing to follow the study protocol. Based uponhis observation of implant surgeries, Dr. Lazarof concluded the second report included new information of adverse patient reactions, namely, boneloss, fistulas, and bleeding gums, and the patient charts had been altered by deletions and additions in order to make them consistent with negative comments in the secondreport. Dr. Lazarof did not receive any patient records until September 1999 when they were produced in responseto a court order. He did not receive the complete records until six or seven monthslater. Dr. Lazarof’s review of the records showedthat of the 23 patients (whoreceived a total of 43 implants), 12 patients (who received a total of 20 implants) should not have been included in the study because they fell within the exclusioncriteria: They exceededthe age limit of 65, smoked, used alcohol, had poor bone quality, psychiatric problems, infections, or were undergoing other treatments 2 The first amended complaintalleged claims against USC, Dr. Chee, Dr. Nowzari and several other individual defendants for breach of written contract, intentional interference with prospective economic advantage, trade disparagement, violation of Business & Professions Code section 17200, conversion, fraudulent deceit, fraudulent misrepresentation, fraud, breach of the covenant of good faith and fair dealing, negligence, and breach of oral agreement. before the implants could be used. Somepatients had more than one of these exclusion criteria.> After terminating the study, in December 1999 Sargon did not contact any other dental schools to do a study of the implant. In June 2000, Dr. Lazarof learned that Nobel Biocare had madesubstantial monetary payments to USC andpaid honorariumsto Dr. Chee. H DISCUSSION On appeal, Sargon challenges (1) the sustaining of the demurrerto its breach of covenantclaim, (2) the granting of the motion for judgment on the pleadingsasto its breach ofcontract claim as to Dr. Chee, (3) the granting of the summary adjudication motion as to its fraud claim, (4) the granting of the motion in limine to exclude evidence of lost profits, and (5) the award of attorneyfees to Dr. Chee. USC cross-appealsas to the award ofattorney fees to Sargon. Weconclude thetrial court properlyresolved all of these issues with the exception of the granting of the in limine motion to exclude evidenceoflost profits. We therefore remand the case for a newtrial on that issue. A. Demurrer to Second Amended Complaint ececeOnreviewofthe sufficiency of a complaint against a general demurrer, “‘“[w]e treat the demurrer as admitting all properly pleaded material facts, but not contentions, deductions or conclusionsoffact or law.””” (Evans v. City ofBerkeley (2006) 38 Cal.4th 1, 6.) We also consider matters subject to judicial notice. (/bid.) Oursole task is to determine as a matter of law whether the complaintstates a cause of action. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300.) “[W]hen [a demurrer] is sustained without leave to amend, we decide whetherthere is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abusedits 3 Twelvepatients had exclusion criteria, as follows: age violations (four), smokers (three), diabetic (one), alcohol (two), poor bone quality (four), psychiatric problems (one), adjacent infection (one), concomitant treatment required (one). discretion and wereverse; if not, there has been no abuse ofdiscretion and weaffirm.” (Blank y. Kirwan (1985) 39 Cal.3d 311, 318.) The burden of proving such reasonable possibility rests squarely on the appellant. (Schifando v. City ofLos Angeles (2003) 31 Cal.4th 1074, 1081.) On April 10, 2006, Sargon filed its second amended complaint against USC, Dr. Chee, and Dr. Nowzari, alleging claims for breach of contract, breach of the covenant, fraud, intentional interference with economic advantage, breach of fiduciary duty, and negligence. (Dr. Nowzariis not a party to this appeal.) The second amended complaint alleged as follows. Thefirst cause of action, for breach of contract, against Dr. Chee and USC, alleged they breached the CTA byfailing to provide the written reports as provided in the CTA;failing and refusing to permit Sargon to review and copy patient records as provided in the CTA; failing and refusing to permit Sargon to be presentat all clinical procedures and to meet and confer with persons involved in the study as provided in the CTA; publishing descriptions of the study without providing Sargon with a written copy of the proposed publication for Sargon’s review and commentas provided in the CTA; releasing and disseminating information regarding the CTA andthe study without Sargon’s prior written consent as provided in the CTA; releasing and disclosing confidential informationto third parties and known competitors, as that term was defined in the CTA;andselecting patients for the study who were not within the age or health guidelines of the study. Sargon also alleged that it was entitled to attorney fees on this claim pursuantto this court’s opinion in Sargon J. The second causeofaction, for breach of the covenant, alleged that USC and Dr. Chee had breached the covenant by, amongotherthings, intentionally selecting patients of the study who were not within the age or health guidelines of the study; intentionally including patients in the study the parties had agreed to exclude; improperly discrediting the study by informingthird parties that the implant had unacceptably high rates of failure; destroying, altering and damaging records; failing to disclose receipt of 10 contributions from Sargon’s largest competitor, Nobel Biocare; and permitting the approvalofthe study by the Institutional Review Board (IRB) of USC to lapse. Thethird cause ofaction, for fraud, alleged that USC and Dr. Chee misrepresented their expertise, willingness, and qualifications to perform the study competently, and misrepresented that they intended to perform their obligations as described in the CTA. Sargon alleged such representations were knownto be false at the time USC and Dr. Chee made them, and had Sargon knownthetrue facts, it would not have engaged in promotion, marketing, sales, and other activities. The second amended complaint also alleged in its fourth, fifth and six causes of action, which are notat issue here, claims for intentional interference with economic advantage: breach of fiduciary duty based on defendants’ entrustment with Sargon’s confidential patient information andintellectual property; and negligence based on defendants’ failure to perform the CTA competently. Defendants demurredtoall causes of action in the second amended complaint except the first cause of action for breach of the CTA. Defendants argued that with respect to the claim for breach of the covenant, Sargon sought to relitigate issues that had previously been adjudicated against it. In particular, Sargon claimed that defendants had breached the CTA (1) by selecting patients for the study who were not within the age guidelines, (2) intentionally including in the study patients that the parties had previously agreed to exclude, and (3) improperly discrediting the study by informingthird parties that the implant had unacceptably high levels of failure. Defendants contendedthat in Sargon I we drew a distinction between the primary right underlying the fraud allegations and the contractallegations by finding the fraud allegations involved acts outside the scope of the CTA. Further, in Sargon I, we granted leave to plead a breach of the covenant, but only insofar as it was based on the alteration of patient records.4 Therefore, 4 In Sargon I, we stated that we agreed with Sargon’s analysis that “‘[t]he mere failure of performanceofthe clinical trial agreement does not violate the same primary right as actions deliberately and fraudulently undertaken to destroy the reputation of the implant byaltering patient records, accepting bribes from plaintiff's competitor, and 1] by pleading breach of the covenant based uponthe three classes of acts, Sargon was seeking torelitigate issues previously adjudicated in Sargon J. Sargon argued in opposition to the demurrerthat collateral estoppel did not precludeits breach of the covenant claim becausecollateral estoppel did not apply to further proceedings in the same case; Sargon / specifically mentioned that claim and did not consider it to be precluded by prior proceedings:> defendants did not demurto the remaining factual allegations underpinning the claim;® and the jury’s verdict established that it found against USC onthese three factual issues. The parties submitted supplemental briefing as to whether the breach of covenant claim was(1) the legal equivalent of Sargon’s breach of contract claim or (2) foreclosed by Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654 and its progeny, including Mitsui Manufacturers Bank v. Superior Court (1989) 212 Cal.App.3d 726. Sargon argued that a claim for breach of the covenant was independent ofa breach of contract claim. While acknowledging that such a claim that relied on the same alleged acts and sought the same damages could be disregarded as superfluous, Sargon argued that where the underlying acts supporting each claim differed, a claim for breach of the covenant wasdistinct where none of the acts complained ofwere disallowed by the agreement, but had the effect of injuring the plaintiff's right to receive the benefits of the agreement. Sargon also arguedthat, under Foley, breach of the covenant need not be tortious, and could constitute a claim grounded in contract law. permitting approval of the [IRB] to lapse. [§] Importantly, none of the alleged fraudulent acts need to be shownbyplaintiff to prevail on the breach of contract action.” (Sargon I, at p. 19.) > In Sargon I, we stated that the breach of the implied covenant claim was based uponthe alteration of patient records. (Sargon I, at p. 4.) Sargon’s first amended complaint alleged breach by defendants (USC and Dr. Chee) through the destruction, alteration, and damagingofpatient records. © Theseallegations stated that defendants destroyed, altered and damaged records; failed to disclose receipt of contributions from Sargon’s largest competitor, Nobel Biocare; and permitted the approval of the study by the IRB of USCto lapse. 12 Defendants’ supplemental brief argued that Sargon’s only damages for breach of the covenant were contract based, and the claim was barred because Sargon hadalready recovered contract damages. Further, tort claims for breach of the covenant were only permitted where the plaintiff could allege a special relationship, and generally were limited to the insurance context. The trial court sustained the demurrer without leave to amend the second (breach of covenant) and fifth (breach of fiduciary duty) causes of action. Thetrial court overruled the demurrer to the remaining causes of action, and defendants answered the second amended complaint. On appeal, Sargon contests only the trial court’s dismissal of its second cause of action for breach of the covenant. We agree with the trial court. First, Sargon argues it was not required to plead a special relationship becauseit wasnot seeking tort damages. Second, Sargon contends breach of the underlying contract was not necessary to allege a breach of the covenant, and it alleged a separate breach of the covenant because the second amended complaint in paragraph 40(b)—(f/) stated facts supporting a finding that USC engaged in conduct to deny Sargon’s right to the benefits of the contract. Defendants argue that ofthe five acts alleged in support of the covenant claim, four of them (improperpatient base, alteration of patient records, discrediting of the study and permitting lapse of the IRB approval) duplicated the breach of contract claim, while the remaining claim, defendants’ receipt of contributions from Nobel Biocare, was not prohibited by the contract. The law implies “in every contract a covenant by each party not to do anything which will deprive the other parties thereto of the benefits of the contract.” (Harm v. Frasher (1960) 181 Cal-App.2d 405, 417.) The covenant imposes uponeach party to the agreementthe obligation to do everything that the contract presupposes they will do to accomplish its purpose, and to refrain from doing anything to injure the right of the other to receive the benefits of the contract. (Schoolcraft v. Ross (1978) 81 Cal.App.3d 75, 80; Sheppard v. Morgan Keegan & Co. (1990) 218 Cal.App.3d 61, 66.) Good faith and fair dealing is defined as “‘“faithfulness to an agreed common purpose and consistency with the justified expectations of the other party [and] excludes . . . a variety of types of 13 conduct characterized . . . as involving ‘bad faith’ because they violate community standards of decency, fairness, or reasonableness.”’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393, fn. 15 (Careau), quoting Rest.2d Contracts, § 231, com.a.) The breach of a specific provision of the contract at issue is not necessary to a claim for a breach of the covenant. (Schwartz v. State Farm Fire & Casualty Co. (2001) 88 Cal.App.4th 1329, 1339.) The breach of the covenantas an independentbasis for a claim is, however,limited by the contractitself. The covenant cannot vary the express terms of the contract. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 374 (Carma).) Thus, the covenant may not be read to prohibit a party from doing that which is expressly permitted by the agreement. (/bid.) Nor can the covenant impose duties or limits beyond the express termsof the contract. (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349 (Guz).) As explained in Guz, “t]he covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits ofthe agreement actually made.” (Id. at p. 349.) Further, although breach of the underlying contract may also constitute a breach of the covenant, “a claim that merely realleges that breach [of contract] as a violation of the covenantis superfluous.” (Guz, at p. 352.) Hence the conundrum ofalleging a breach of the covenant: To the extent the claim for breach seeks to impose limits on the contract beyondthat to whichthe parties agreed,it fails; and to the extent the covenantis used to invoke terms to whichthe parties did agree,it is superfluous. (/bid.) Nonetheless, a breach of the covenantof good faith and fair dealing givesrise to an action for damages. (Harm v. Frasher, supra, 181 Cal.App.2d at p. 415.) Here, Sargon hasrealleged violations of the underlying CTAasthe basis for a breach of the covenant, alleged extra-contractual conductthat is not prohibited by the contract, or failed to otherwise allege a breach of the covenant. Thus, the trial court properly dismissed the breach of covenant claim by way of demurrer. 14 B. Motion for Judgment on the Pleadings A motion for judgmenton the pleadings is the equivalent of a general demurrer when the motion is brought by a defendant. On appeal, we assumethetruth ofall facts properly pleaded in the complaint, and may consider matters subject to judicial notice. (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 321.) On March 21, 2007, defendants filed a motion for judgmenton the pleadings on the ground the second amended complaintfailed to state a breach of contract claim against Dr. Chee. Defendants argued that Sargon had voluntarily dismissed Dr. Chee before the trial in Sargon I, and USC wasthe only party foundliable for breach of contract. As westated in Sargon I, the recovery of lost profits was the only issue to be retried on remand. (Sargon J, at p. 22.) Further, defendants argued Dr. Chee could not be liable for breach because he wasonly a party to the terms of paragraph 11.3, where he represented and warranted he knew of no reason whyhe could notbe principal investigator of the study. Paragraph 11.3 provided: “‘[T]he University and Dr. Chee . . represent, warrant and covenantto the Sponsoras follows: (a) to their actual present knowledge, without any duty to investigate, they know of no reason why Dr. Cheewill not continueto serve as the Principal Investigator throughoutthe entire Research Period. (b) Each of them will notify the Sponsor . . . of any set of facts and circumstances which are reasonablylikely to result in Dr. Chee’s ceasing to serve as the Principal Investigator... .°” Sargon contended Dr. Chee’sliability was not limited to paragraph 11.3 because Dr. Chee signed the CTA both individually and as director of implant dentistry. Further, Sargon arguedit specifically alleged numerousacts constituting breaches of the CTA by Dr. Chee, including his failure to provide Sargon written reports, failure to permit Sargon to review patient records and be presentat clinical procedures, publication of study results without Sargon’s review and comment, releasing information aboutthe study without Sargon’s written consent, revealing and disclosing confidential information, and selecting inappropriate patients for the study. Finally, Sargon claimedthattheparties 15 intended to make Dr. Chee liable under the CTA,orat the very least, there was an ambiguity in the CTA whether Dr. Chee wasindividually liable. In the trial court, Sargon did not dispute that Dr. Chee had been dismissed from the breach of contract claim beforethefirst trial and that, after the first appeal (Sargon J), we remandedonly for the purpose of determining Sargon’s recovery oflost profits on the contract claim. Thetrial court therefore granted defendants’ motion, dismissing the breach of contract claim against Dr. Chee in the second amended complaint. Sargoncites no authority permitting it to dismiss a partyin a lawsuit and later seek trial against that party in the same lawsuit on remand. Weconcludethat pursuant to the doctrine of res judicata, Sargon’s contract claim against Dr. Chee could not be revived on remand. That doctrine precludesrelitigation of the same cause ofaction and piecemeallitigation by splitting a single cause ofaction. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897: Merry v. Coast Community College Dist. (1979) 97 Cal.App.3d 214, 221-222.) “Thepriorfinal judgment on the merits settles issues which werenot only actually litigated but every issue that might have beenraised and litigated in the first action.” (Merry v. Coast Community College Dist., supra, 97 Cal.App.3d at p. 222.) Sargon’s breach of contract claim was reviewedin Sargon I, whichis final. Sargon’s claims against Dr. Cheeare mergedinto the Sargon /judgment on the contract claim and maynotberaisedin trial on remand. Therefore,the trial court did noterr in dismissing the breach of contract claim against Dr. Chee. C. Motion for Summary Adjudication “[T]he party moving for summary judgmentbears the burden of persuasion that there is no triable issue of material fact andthat he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) “Oncethe [movant] has metthat burden, the burden shifts to the [other party] to show that a triable issue of one or more material facts exists as to that cause of action.” (§ 437c, subd. (p)(1); Aguilar, at p. 850.) A triable issue of material fact exists where “the evidence would allow a reasonabletrier of fact to find the underlying fact in favor of the 16 party opposing the motion in accordance with the applicable standard of proof.” (Aguilar, at p. 850.) Where summary judgmenthas been granted, “[w]e reviewthe trial court’s decision de novo, considering all of the evidence the parties offered in connection with the motion (except that which the trial court properly excluded) and the uncontradicted inferences the evidence reasonably supports.” (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.) The samerules apply to summary adjudication. (See Lomes v. Hartford Financial Services Group, Inc. (2001) 88 Cal.App.4th 127, 131.) Defendants moved for summary adjudication of Sargon’s claimsfor fraud, intentional interference with prospective economic advantage, and negligence. On appeal, Sargon contests the summary adjudication of the fraud claim only. And it does not challenge that ruling as to Drs. Chee and Nowzart. The elements of a fraud claim are: “‘(1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting damage.’” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.) ‘“‘Promissory fraud’ is a subspecies of [an] action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud.” (Lazarv. Superior Court (1996) 12 Cal.4th 631, 638.) Both claims require a showing of reliance on the misrepresentations. Whether reliance was reasonable is a question of fact for the jury, and may be decided as a matter of law only if the facts permit reasonable minds to cometo just one conclusion. (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th at p. 1239.) Further, whetherrelianceis reasonablein an intentional fraud caseis not tested against the “standard of precaution or of minimum knowledgeof a hypothetical, reasonable man.” (Seeger v. Odell (1941) 18 Cal.2d 409, 415.) Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff's conduct whichaltered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not,in all 17 reasonable probability, have entered into the contract or other transaction. (Spinks v. Clark (1905) 147 Cal. 439, 444.) Although parol evidence is usually admissible to establish fraud, it may not be admitted to establish promissory fraud. (Pacific State Bank v. Greene (2003) 110 Cal.App.4th 375, 390.) Therefore, evidence may not be admitted “to show a promise which contradicts an integrated written agreement[unless] the false promiseis either independentof or consistent with the written agreement... .” (Wang v. Massey Chevrolet (2002) 97 Cal.4th 856, 873.) Here, because defendant’s representations concerning their intended performance under the CTA were consistent with the language and purposes of the CTA, they are admissible. Sargon arguesthe trial court erred in granting summaryadjudication onits fraud claim because defendants failed to show Dr. Lazarof relied on Dean Landesman’s and Dr. Abou-Rass’s statements regarding Dr. Chee. Sargon contendsrelianceis a fact question, particularly under the circumstances where, as here, Dr. Lazarof responded to a speculative and hypothetical question in deposition whether he would haveretained the study at USC if he had insisted on Dr. Abou-Rass but USC hadinsisted on Dr. Chee. (See Vasquez v. Superior Court (1971) 4 Cal.3d 800, 814 [where representations made in reference to a material matter andaction has been taken, absent evidence to the contrary, it will be presumed representations wererelied on].) Here, the uncontroverted evidence established that Dr. Lazarofdid not rely on Dean Landesman’sor Dr. Abou-Rass’s statements about Dr. Chee in agreeing to the CTA. Dr. Lazarof was aware from the outset that Dr. Chee harboredsignificant animosity toward him and intended to “bury” the Sargon implant. Yet, notwithstanding that knowledge, Dr. Lazarof agreed to permit Dr. Chee to head the study. Therefore,it is indisputable he did not rely on anything Dean Landesman or Dr. Abou-Rasstold him about Dr. Chee. (See Boeken v. Philip Morris Inc. (2005) 127 Cal.App.4th 1640, 1666— 1667 [when reasonable minds could not disagree, reliance becomes question of law].) Because USCestablished a lack of reliance as a matter of law, the trial court properly adjudicated Sargon’s fraud claim in favor of the university. 18 D. Exclusion of Evidence on LostProfits The exclusion of expert testimony is generally reviewed for an abuse of discretion standard. (Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1493.) Here,thetrial court erroneously excluded the proffered testimony. “Technical arguments about the meaning and effect of expert testimony on the issue of damagesare bestdirected to the jury.” (Heiner v. Kmart Corp. (2000) 84 Cal.App.4th 335, 347.) “Where thefact of damagesis certain, the amount of damagesneed not be calculated with absolute certainty. ... The law requires only that some reasonable basis of computation of damagesbe used, and the damages may be computedevenif the result reached is an approximation. .. . This is especially true where, as here, it is the wrongful acts of the defendant that have created the difficulty in proving the amountofloss of profits .. . or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled.” (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873-874, citations omitted, followed in MHC Financing Limited Partnership Twov. City ofSantee (2010) 182 Cal.App.4th 1169, 1181, fn. 11.) “[Where the operation ofan established business is prevented or interrupted, as by a tort or breach of contract or warranty, damagesfor the loss of prospective profits that otherwise might have been made from its operation are generally recoverable for the reason that their occurrence and extent may be ascertained with reasonable certainty from the past volume of business and other provable data relevant to the probable future sales. ... On the other hand, where the operation of an unestablished business is prevented or interrupted, damages for prospective profits that might otherwise have been made from its operation are not recoverable for the reason that their occurrenceis uncertain, contingent and speculative. ... But although generally objectionable for the reasonthat their estimation is conjectural and speculative, anticipated profits dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonablereliability. . . . [D]amages for the loss of prospective profits are 19 recoverable where the evidence makesreasonably certain their occurrence and extent.” (Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 883.) The present case involves an established business. “It is enough to demonstrate a reasonable probability that profits would have been earned except for the defendant’s conduct.” (Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at p. 884.) “[D]amages maybeestablished with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business recordsof similar enterprises, and the like.” (bid.) Atthe retrial of the breach of contract claim, Sargon’s expert, James Skorheim, opined that, but for defendants’ conduct, Sargon’s dental implant would have obtained a market share comparable to a handful of the world’s leading dental implant companies. Under Skorheim’s approach, the jury would determinethe level of innovativeness of Sargon’s implant, and based upon that determination, choose a corresponding percentage market share; this market share would translate into between $220 million and $1.18 billion in lost profits. USC movedin limine to exclude Skorheim’s testimony, contending (1) his market share theory was not based on Sargon’s historical financial results and made comparisons to dissimilar companies; (2) Skorheim had no basis to opine that Sargon’s degree of innovativeness would lead to any particular share of the market; and (3) Skorheim admitted that numerous speculative events would need to occur for Sargonto realize its claimedlost profits. Sargon argued that Skorheim’s opinion wasbased upon Sargon’s historical financial results; similar companies for purposesoflost profits analysis need not be companies of the same size, revenues, products, or location as Sargon; Skorheim did not need to be a dental implant expert to render an opinion; the jury was equipped to evaluate the innovativeness of Sargon’s implantrelative to others in the marketplace based upon expert evidence that would be presentedat trial; and Skorheim’s analysis was not speculative because it was based on the performance of similar companies. 20 Defendants countered that Skorheim had admitted historical data was not relevant: the law created no exception for plaintiffs who seek more damagesthanreflected by past performance;there was no factual similarity between the six comparison companies, and the “major drivers” of success theory was not a substitute for a factual comparison;it would be impossible for the jury to compare degrees of innovation; and even if the jury could rank relative innovation, it was not the sole creator of market share. The court conducted an Evidence Code section 402 hearing to determine whether to exclude Skorheim’s testimony. Skorheim, Dr. Lazarof, and two industry experts, Steven Hanson and Robert Pendry,testified. Skorheim,a certified public accountant and attorney specializing in forensic accounting damagesanalysistestified that Sargon’s lost profit damages from the breach of the CTA ranged from $220 million to $1.18 billion. In preparing his opinion, Skorheim reviewedlitigation materials (including deposition transcripts and reports of USC’s damagesexperts), financial information from Sargon and its competitors (including annual reports), and market analyses of the global dental implant market prepared by Millennium Research Group (MRG). Those sources covered the United States, European, and Pacific-Asian markets for dental implants. Excerpts of the MRG market analysis reports are scattered throughout Skorheim’s expert report. Skorheim conducted independentresearch of the dental implant market and interviewed Dr. Lazarof and industry executives Steven Hanson and Robert Pendry. Skorheim used the market share approachto lost profit damages because the methodology had been used in complicated patent cases, antitrust cases, and unfair competition cases. Skorheim’s “market share” approach was based upon a comparison of Sargon to six other large, multinational dental implant companies that were the dominant market leaders in the industry, and which controlled in excess of 80 percent of globalsales (Big Six): Nobel Biocare, Straumann,3i, Zimmer, Dentsply, and Astra Tech. Although there are approximately 96 companies worldwide that make dental implants, Skorheim believed the Big Six were the top innovators based uponhis analysis of the MRGreport 21 and marketintelligence.’ In his opinion, the remaining companiesin the dental implant marketrely on price, not innovation, to compete. Each of the Big Six’s market share, in Skorheim’s opinion, was based on three core factors: (1) innovation,(2) clinical studies establishing the efficacy of their dental implants, and (3) outreach to general practice dentists. The value of a clinical study to an implant makeris twofold: It establishes the efficacy of the device and permits entry into the universities where students can be taught to use the device, with the expectation that, upon graduation, they will use the productin their practices. Skorheim notedthat clinical success of the Sargon implant wouldlikely have been followed by commercial success. Nobel Biocare’s Branemark implant wasthe pioneer implant developed in the 1960’s and 1970’s and required two surgeries. Straumann developed the second generation implant, which wasplacedin the bone without being submerged in the gum. In the early 1990's, there was very little penetration into the potential dental implant market. Out of millions of potential patients, only about 1 percent ofthis potential market was receiving product, presenting an opportunity for tremendous growth. In the late 1990’s, the market began to grow dramatically. Industry reports demonstrated the global market was expected to grow during the period 1998 to 2009 at an annualized rate of 18.5 percent. At the time, the market craved technological innovation aimed at shortening healing time, cost, and treatment time. MRGpredictedthat sales of immediate load implants would grow at compoundannualrates of 56.3 percent during 2002 to 2006, and 32.8 percent from 2005 to 2009. Further, MRG reported in 2004, immediate loading implants represented only a “niche” market because demand was limited by industry acceptance. By 2009, immediate load implants would account for 14.9 percent of the United States market, up from 0.4 percent in 2000. 7 On cross-examination, Skorheim acknowledged that MRG’sreport did not state the Big Six were the most innovative; rather, it was an inference he drew from reviewing the report and the size and success of the companies in comparisonto other, smaller companies. 22 Sargon’s innovation lay in the use of an “immediate load implant,” the “‘holy grail of dental implantology,’” which wasdirected at the market’s need for ease of use, shortened healing times, and overall cost. Given the state of the implant marketat the time, in Skorheim’s opinion an innovator such as Sargon would have rapidly commanded a significant market share; with the exception of Nobel Biocare,all of the other major implant makersare recentarrivals on the scene. Skorheim outlined similarities and differences between the Big Six and Sargon: First, they all manufactured titanium implants, and the implants were one-stage, two- stage, or immediate load (Sargon only); second,all used clinical studies; third, all used outreach to general practitioners; fourth, pricing was substantially the same; fifth, their qualitative and quantitative cost structures were the same: and the implants were manufactured either in-house or pursuant to a contract with a third party. Qualitative cost structure consisted of cost of goods sold, research and development costs (R&D), sales and marketing costs, and general administrative costs. Sargon did not have a meaningful R&D organization or a sales and marketing department. In all other respects, Sargon’s costs were similar to the Big Six. Forthe relevant time period, approximately 1998, Skorheim’s testimony with respect to Sargon’s competitors can be summarized as follows: Sargon Astra Zeneca Dentsply Biomet33 Nobel® (1998) (1999) (1998) (2000) (1998) Employees < 20 > 55,000 > 6,000 > 4,000 > 1,000 R&D $ 46,000 $ 2,923,000,000 $ 18,200,000 $ 40,208,000 $ 8,741,808 Net Sales $1,748,612 $18,445,000,000 $795,122,000 $ 920,582,000 $164,747,305 NetProfits $101,113 $ 1,143,000,000 $ 34,825,000 $ 173,771,000 $ 5,868,080 Assets $544,977 $19,816,000,000 $895,322,000 $1,218,448,000 $243,621,260 Market Share N/A 48% 7% 17 % 22-23 % (2007)? 8 These figures were converted from Swedish kronerusing exchangerate in effect in 1998 (7.9503 kronerto the dollar). Nobel Biocare acquired SteriOss, a United States implant company,in 1999; the acquisition increased Nobel Biocare’s market share and added productsto its portfolio. Astra Tech is a subdivision of Astra Zeneca. The figures (except for Nobel) reflect the conglomerates’ total sales, not just sales for implants. Their “market share,” however, refers to their share of implantsales. 23 Skorheim used Sargon’s revenues in 1998 as his base year because that was when the first report was due. In 1998, Sargon had approximately $1.8 million in revenues, which wasroughly one-half of ] percent of the global market of $367 million. Sargon had three to four employees. Skorheim asserted that in 1998 Sargon had the same “business metric” as the Big Six. For example, Sargon shared with Straumannthat both sold titanium implants; both Sargon and Nobel Biocare were contacting universities for further outreach for their products. Sargon and Nobel Biocare pursued foreign distribution. In qualitative (component) terms, Sargon’s cost structure was similar to 3i, although quantitatively (size-wise) it was not. Thus, in computing Sargon’s profits, Skorheim used the same cost structure as Nobel Biocare and Straumann, explaining, “I found very consistentstatistics and performance between Nobel Biocare and Straumann, which suggested to me,that was a very strong indicator, that the market cost structure for [an emerging] company coming out of kind of what wecall the startup phase, and certainly Sargon wasin that startup phase, in the mid-90’s. And then by 1998, trying to get thoseclinical studies on, coming out ofthe startup phase, that the cost structure would rationalize, you know,at that point in time or around that point in time.” Although Sargon had better controlofits direct costs, its general and administrative cost structure was burdened. Asa result, Sargon’s “keep factor” (profit) was about 10 percent of gross revenues, compared with 30 percent for the larger implant companies. Skorheim opinedthat if in 1998 the interim report had been positive based upon the publicity generated at the Monte Carlo symposium andother publicity generated by USC, Sargon’s revenues over the next year would have doubled, giving it a 1 percent market share. Skorheim’s prediction assumed Sargon was comparable with the market ® Straumann, another comparator company for which there was no data in the record during the relevant period, had attained a 22 percent global market share in 10 years. In 2005, Straumann’s sales surpassed Swiss F 500,000,000. Straumann spends approximately 5 percent of sales on R&D. 24 share leaders and would haveattained similar successif it had been able to marketits implant with the support ofclinical study results from USC. Skorheim’s damages model created four alternative damage scenarios based upon the jury’s determination of the innovativenessofits implant. As a predicate, Skorheim had rankedthe innovativeness of the comparator companies and established a hierarchy. If the jury concluded Sargon’s level of innovation was equal to the least innovative of the benchmark companies, Astra Tech, Sargon would haveattained a 3.75 percent share; if the jury concluded Sargon’s level of innovation was equal to one ofthe lesser innovators of the benchmark companies, like Dentsply, Sargon would have attained a 5 percent marketshare; if the jury concluded Sargon’s level of innovation was equal to a middle- level innovator, like 31, Sargon would haveattained a 10 percent share; and if the jury concluded Sargon’s level of innovation wasthat of the most innovative companies, Nobel Biocare and Straumann, Sargon would have attained a 20 percent market share. In these four scenarios, Skorheim calculated Sargon’s lost profits based on an 11- year time frame running from 1998 to 2009, as follows. Market Share 3.75 % 5% 10% 20 % (Astra Tech) (Dentsply) (31) (Nobel/Strau.) Lost Profits $120,011,000 $181,020,949 $335,940,541 $ 640,232,628 1998-2009 Value 100,473,347 134,343,563 269,824,425 540,786,150 Post 2009 TOTAL: 220,484,347 315,364,512 605,764,968 1,181,018,778 Nonetheless, Skorheim did not have an opinion as to which of the Big Six was the most innovative company. He intended that this determination would be madeby the Jury, and contendedit wasnot necessary to his calculations. During the hearing on the motion in limine, the trial court stated that it was troubled by the “beauty contest” aspect of Skorheim’s comparison of the Big Six. ““How do you say a Fordis better than a Chevrolet, or a Ford is the best car on the road, or Miss Colorado should have won the Miss America contest[?]” Although the court was inclined to exclude the comparison companies with 7, 10, and 20 percent market shares 25 as being unreasonableas a matter of law, it was inclined to leave the “fourth bucket,” namely, Astra Tech, at a 3.75 percent market share. Defendants argued that there was no basis to conclude Sargon would haveattained even Astra Tech’s market share. The court respondedthat it was taking away “three of the four buckets,” and that it “was not enamored with the beauty contest, [and] thought innovativeness wasa tadbit squishy, the analysis is squishy, there’s no similarity in these businesses.” Further, Skorheim did not use historical data, and there was nothing to back up his assumptions. Defendants argued that even if the court left the “last bucket,” Astra Tech, the court was nonetheless leaving a bucket that was not comparable to Sargon and would be requiring the jury to compare degrees of the companies’ innovation in dental implant design. Dr. Lazarof confirmed Skorheim’s conclusion that innovation coupled with clinical studies wasthe driver of market share. Sargon also presented the testimony of Steven Hanson,president from 1992 to 2004 of Calcitek, a successful implant company, whotestified Sargon could have commanded a 15 to 20 percent share ofthe marketif the USC study had been completed, although he had not done a market study or considered the probability of all of the other steps necessary to get Sargon a 15 to 20 percent market share. Robert Pendry wasat Straumann from 1992 to 2001 and at Thommen Medical from 2002 to 2006,and testified that in his opinion the Sargon implant was“absolutely revolutionary” and “world changing” whenintroduced in 1997 to 1998. In Pendry’s words, the Sargon implant “was the most exciting thing I’d heard in the implant business ever.” At the conclusion of Skorheim’s Evidence Codesection 402 hearing, thetrial court noted it was trying to save Sargon’s case whenit stated it would excludeall comparator companies except for Astra Tech. The court stated expert testimony on lost profits needed to be groundedin historical profit or comparable companies. The court reiterated that it had a problem with the “beauty contest” because it required too many assumptions to be made and there were no standardsfor the jury. In conclusion the court stated, “if this were a close call, it would have gone to [Sargon] in a heartbeat.” Thetrial 26 court concluded that Skorheim’s testimony “leaves the determinationofup to a billion dollars of lost profit damagesto pure speculation” and granted defendants’ motion. The court found Skorheim’s opinion wasnot based on Sargon’s historical profits or those of a similar business; he used assumptions that had no reasonable factual foundation; he gave an opinion beyondhislevel and area of expertise; and there was no California legal authority supporting market share lost profits. The court noted an established business may generally recover for lost profits because their extent may be ascertained with reasonable certainty from the company’s past volumeof business and other provable data relevant to future sales. Lost profits may be established with expert testimony and be based on economicandfinancial data, market surveys and analyses, and business recordsof similar enterprises, but there must be a similarity between the facts forming the basis of the profit project and the business opportunity destroyed. (Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at p. 885.) Ifa lost profits analysis contains a comparison to other businesses, those businesses must be similar. (Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 288 (Parlour Enterprises).) Thetrial court concluded that Sargon relied on data that was not analogousto Sargon’s business. Skorheim used industry leaders, all multi-million and multi-billion dollar international companies. “The only thing these established companies have in common with [Sargon]is that they all sell or make dental implants. In all other respects, in areas the MRGreport deemsrelevant, such as size, history, productline, sales force, access to financing, amongothers, they are worlds apart from Sargon.” While Sargon had a 5 percent profit in 1997, Skorheim used Nobel Biocare and Straumann’s profits, which were at 30 percent. As a result, Skorheim’s “projections are wildly beyond, by degrees of magnitude, anything Sargon has ever experienced in the past. Under the 20% market share scenario, for example, [Sargon] would seeits profits climb by 534.4% the first year, and by over 157,000% by 2009.” Thus, Sargon wasnotsimilar to the Big Six under any relevant, objective business measure. 27 The court also found that comparison of ‘“‘degrees of innovation’”failed to give the jury standards from which it could makea rational decision and wasinherently speculative and subjective. Although the ranking of innovativeness among the market leaders was central to Skorheim’s opinion, he hadtestified he did not know how the market leaders compared to each other, and refused to give an opinion on theissue. Ultimately, the only evidentiary support for the percentage market share scenarios came from Skorheim’s observations of the marketplace, and his conclusion that innovative products generated more sales. To the court, this was nothing more than tautology. The court also found Skorheim lacked expertise in the dental industry, and therefore his opinion waspure speculation. Skorheim did nothing more than read the lay press and conduct informal interviews. Finally, the court determined that Skorheim’s opinion was based upon speculative assumptions, including a series of successful clinical tests, marketing efforts, research and development, training of dentists, and relationships with universities; Skorheim believed “by 2007 Sargon would have made the seamless transition from a three-person operation to sharing industry leadership with Nobel Biocare, a multi-million dollar international corporation.” After the trial court excluded Skorheim’s testimony, the parties selected a jury. Sargon informed the court it intended to put onlost profit damages based upon Sargon’s historical performance andthe testimonyofits other experts; however, Sargon abandoned its lost profits claim andstipulated to entry ofjudgment on the previous $433,324.72 breach of contract award. Sargon elected to request entry ofjudgmentafter exclusion of Skorheim’s testimony becauseit did not believe its other two experts would provide sufficient evidenceto establish its claim forlost profits. In sum, Sargon wasbarred from calling Skorheim on the groundthat his testimony was speculative. In substance, he would have opined that had USC notbreachedits contract, Sargon would have obtained a market share comparable to a handful of the world’s leading dental implant companies. Usingthis analysis, the jury would have compared Sargon with companies having a market share of 4.8 percent, 7 percent, 28 17 percent, and 22—23 percent, with profits from $220 million on the low end to $1.1 billion on the high end. The jury would have been askedto select the company most comparable to Sargon and award the corresponding amountforlost profits. Sargon claimsits lost profits are reasonably certain. USC claims otherwise. Of course, damages need notbe calculated with absolute certainty, but only with some reasonable basis. With new businesses, the task is more difficult, but the test is still reasonable certainty. (Resort Video, Lid. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1698 [“‘[L]oss of prospective profits may nevertheless be recovered if the evidence shows with reasonable certainty both their occurrence and the extent thereof.’”].) USC relies on Parlour Enterprises, supra, 152 Cal.App.4th 281. That case involved a plaintiff which had a contract with a defendant subfranchising ice cream parlors. After the plaintiff opened one parlor in Los Angeles, the defendant breached, causing the plaintiff to go out of business. The plaintiff sued and was awarded over $6 million in damages, including lost profits. The defendants appealed, and the Court of Appeal determined that the award for lost profits was unsupported by substantial evidence, reducing the damages award to around $130,000. The court rejected the plaintiff's pro formaprojections of lost profits because they were not based onfacts that were substantially similar to the lost business opportunity; rejected the market data for Friendly’s restaurants numbering 300 and for a couple dozen other ice cream parlors as not sufficiently similar to the plaintiff's ice cream parlors; and for the same reason rejected other financial information. Sargon, for its part, relies on Palm Medical Group, Inc. v. State Comp. Ins. Fund (2008) 161 Cal.App.4th 206 (Palm Medical Group), involving plaintiff, an occupational medical clinic in Fresno which was denied admission into the preferred provider networkof the State Compensation Insurance Fund. Theplaintiff sued the fund, claiming it had been excluded unfairly, and won a $1,131,000 damages awardfor lost profits. On appeal, the fund argued the damages awardfor lost profits was too speculative. The Court of Appeal disagreed,citing the plaintiff's evidence whichrelied 29 on the average gross revenue of the top four or six preferred provider network providers in Fresno which provided services comparableto the plaintiff's services. Sargon has the better argument here. Palm Medical Group is more on point than Parlour Enterprises. In 1998, Sargon had about $1.8 million in revenues, roughly one- half of 1 percent of the global market for dental implants. Astra Tech, one ofthe companies relied on by Skorheim, had around $18.5 million in revenues, for a 4.8 percent market share. The other companies had greater revenues and market shares. At the very least, the jury was entitled to hear about Astra Tech because it was sufficiently similarto Sargon, and a damages award based on a comparison to that company would have been supported by substantial evidence, not speculation. We acknowledge the difficulty in determining lost profits when an established business is built upon the sale of an innovative, revolutionary, or world-changing product. The factor of innovation — whatthetrial court described as a “beauty contest” — is not easily converted into dollars and cents. But exactitude is not required. None of Sargon’s competitors used its implant, and, to that extent, they were different. Butlost profits may be based on a comparison of similar companies; they need not be identical in all respects. Skorheim’s expert opinion was based on “economic and financial data, market surveys and analyses, business recordsof similar enterprises, and the like.” (Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at p. 884.) He also considered Sargon’s historical financial data. Thetrial court’s ruling is tantamountto a flat prohibition onlost profits in any case involving a revolutionary breakthrough in an industry. If USC hadnot sabotagedtheclinical study of the Sargon implant, Sargon would have had a successful clinicaltrial to its credit and a prominentuniversity using the implantat its dental school. But it was denied. Throughits wrongful conduct, USC allegedly caused the loss of profits and has madethe proofof lost profits all the more difficult, thereby rendering its evidentiary attack unconvincing. (See GHK Associatesv. Mayer Group, Inc., supra, 224 Cal.App.3d at p. 874.) We have carefully reviewed the 30 trial court’s criticisms of Skorheim’s proffered testimony and conclude they were better left for the jury’s assessment. Again wehold that Sargonis entitled to a newtrial onlost profits. E. Attorney Fees Paragraph 13.3 of the CTA provides: “In any action on or concerning this Agreement. the prevailing party shall be awarded its reasonable attorney fees, costs and necessary disbursements, to be paid by the non-prevailing party.” Sargon arguesthat, for two reasons, even if Dr. Cheeis the prevailing party on the contract claim as a result of the granting of his motion for judgment on the pleadings, he is not entitled to $440,000 in fees. First, Dr. Chee is estopped from claiming fees because, although he was awarded fees under a contractual fee provision, he argued he individually signed only one clause of the contract —- a clause that did not contain an attorney fees provision. Second,trial the court erred in awarding Dr. Chee fees before he was addedas a party on April 10, 2006, and in awarding him fees for matters litigated only by USC. The CTAat paragraph 11.3 provided that “the University and Dr. Chee hereby jointly and severally represent, warrant and covenant” that there was no known reason why Dr. Chee could not complete the Study. The signature line for Dr. Chee stated he wassigning the CTA “individually, solely as to the representations, warranties and covenants contained in Section 11.3 hereof.” Dr. Chee sought $1,488,503.33 in fees pursuant to Civil Code section 1717 based upon the CTA’s attorney fees provision, contending this amount constituted his pro rata share of defendingthelitigation. Sargon argued Dr. Chee wasnotentitled to any fees because he wasnota party to the attorney fees provision in CTA; Dr. Chee wasnotentitled to fees incurred beforethe filing of the second amended complaint on April 10, 2006; Dr. Chee was only entitled to those fees incurred solely for his benefit, as opposed to those fees incurred jointly for his benefit and that of USC; and Dr. Chee’s request was unreasonable in amount. Thetrial court found that Dr. Chee wasthe prevailing party for purposes of section 1032, subdivision (a)(4) on the contract claim because defendants’ demurrers to 31 the second amended complaint’s contract claims were sustained, Dr. Chee’s motion for judgment on the pleadings was granted, and Sargon’s other claims were dismissed on summary adjudication. Further, Sargon had sought attorney fees against Dr. Chee in the second amended complaint under the CTA. Thetrial court rejected Sargon’s claim that Dr. Chee was nota party to paragraph 13.3 of the CTA and wastherefore notentitled to fees. The court concluded the fee provision was reciprocal because Sargon would have recovered fees if it had prevailed on its claim against him; therefore, Dr. Chee had the same right against Sargon. (See Civ. Code, § 1717: Hsu v. Abbara (1995) 9 Cal.4th 863, 870-871; Hasler v. Howard (2005) 130 Cal.App.4th 1168, 1171.) The court also rejected Sargon’s argument that because Dr. Chee was not party to the action between his dismissal on March 17, 2003, andthefiling of the second amended complaint, he was thus not entitled to fees until April 10, 2006. The court found that Dr. Chee benefited from the work performed on behalf of USC during that time. Further, the court refused to limit Dr. Chee to those fees expendedsolely for his benefit but found that an apportionment of fees incurred byall defendants was within its discretion. (See Slavin v. Fink (1994) 25 Cal.App.4th 722, 726.) On that basis, the court awarded Dr. Chee 20 percent of the fees expended by USC. The court determined that a reasonable amountof fees for all defendants postremand was $2.8 million and awarded Dr. Chee $560,000 of that amount, or 20 percent. Dr. Chee’s fee award waslater reduced to $440,000. A litigant who prevails in an action on a contract by establishing the contract is invalid, inapplicable, unenforceable or nonexistent is entitled to fees under the contractif the opposing party would have been entitled to fees had it prevailed on the contact. (Santisas v. Goodin (1998) 17 Cal.4th 599, 611.) Thus, notwithstanding the language in the fee provision, the reciprocal right conferred by Civil Code section 1717 applies to an action on the contract regardless of which party initiated the action. (Pacific Custom Pools, Inc. v. Turner Construction Co. (2000) 79 Cal.App.4th 1254, 1268.) Where multiple parties are represented, the trial court is not required to apportion fees where the “liability of the parties is ‘so factually interrelated that it would have been impossible to 32 separate the activities [of the attorneys] into compensable and noncompensable time units.”” (Cruz v. Ayromloo (2007) 155 Cal.App.4th 1270, 1277.) A defendantina contract action is not a prevailing party whentheplaintiff voluntarily dismissed the action; the defendant1s not entitled to attorneyfees in that situation. (See Civ. Code. § 1717, subd. (b)(2); Santisas v. Goodin, supra, 17 Cal.4th at p. 617.) Sargon did not raise this issue. Here, Sargon’s first argument that Dr. Chee is estopped from claiming fees under the contract because he denied he was obligated under the CTA beyond the representations and warranties of paragraph 11.3 misreads the attorney fees clause of the CTA. As noted, paragraph 13.3 provides: “In any action on or concerning this Agreement, the prevailing party shall be awardedits reasonable attorney fees, costs and necessary disbursements, to be paid by the non-prevailing party.” Under the mutuality provisions of Civil Code section 1717, Sargon would have been entitled to fees underthat provision to enforce paragraph 11.3 of the agreement against Dr. Chee; therefore, Dr. Cheeis likewise entitled to his fees under that provision. (See Santisas v. Goodin, supra, 17 Cal.4th at p. 611.) Second, the hiatus between Dr. Chee’s dismissal prior to thefirst trial and the filing of the second amended complaint on April 10, 2006, affords Sargon norelief from attorney fees to Dr. Chee. Aspart of its reasonableness determination, the court found that Dr. Chee reasonably could have incurred fees in anticipation ofthe litigation being refiled against him. A reasonable award ofattorney fees may include compensation for services rendered priorto filing the complaint. (Stokus v. Marsh (1990) 217 Cal.App.3d 647, 655.) Thus, although Dr. Chee was dismissed from the action on March 17, 2006, and notreinstated until the filing of the second amended complaint, Sargon makes no cogent argument whythis fact, without more, makes Dr. Chee’s fee request unreasonable. Finally, Sargon does not argue why or how weshould segregate fees expended on behalf of Dr. Chee individually from those expended on behalf of USC. Sargon has therefore not demonstrated error with respectto the trial court’s apportionmentoffees. 33 F, USC’s Cross-appeal Sargon challenges the timeliness of USC’s cross-appeal and arguesthat the award of attorney fees against USC was proper. Wereject the timeliness argument and affirm the fee award. 1. Motion to Dismiss Sargon contends that USC’s cross-appeal from the $1.8 million award of attorney fees to Sargon on remand from Sargon J in April 2006 is untimely because the appeal from that award wasnotfiled until after judgment wasentered in the remanded proceedings on August 8, 2007. In its respondents’ brief, USC responds: “The University has decided not to challenge [the $1.8 million] portion of the attorney fee award. Accordingly, Sargon’s motion to dismiss. which wasdeferred in an order dated July 8, 2008, is now moot.” Wetherefore deny Sargon’s motion. 2. Sargon’s Attorney Fees Defendants contend that (1) Sargon wasnotentitled to fees because its recovery on remand wasless than defendants’ section 998 offer, and therefore Sargon must pay their postoffer fees, and (2) the trial court awarded Sargon fees that were excessive in light of the results achieved. Because wereverse fora trial on lost profits, the first contention is moot. As to the second contention, we disagree with defendants and affirm the award. On June 21, 2007, more than 10 days before the commencementoftheretrial on July 9, 2007, defendants submitted a section 998 offer to Sargonto settle the case for $8 million. The offer did not contain a signature line for Sargon’s acceptance. After entry ofjudgment on August 8, 2007, Sargon sought attorney fees in the sum of $4,803,215 for the work performed by Browne Woods George for the period August 1, 2005, to July 25, 2007, and $282,598 for the services of Lewis Brisbois Bisgaard & Smith. USC objected, contending that Sargon failed to obtain a more favorable judgment than USC’s section 998 offer of $8 million, and sought its own fees of $2,056,355.20 as the prevailing party. USC also argued that Sargon could not claim in excess of $5 million as reasonable fees whenit recovered only $433,000at trial, and that it was not 34 the prevailing party for purposes of fees because it recovered nothing newatretrial by merely stipulating to the previous judgmentof $433,000. The trial court determined that in Sargon I we held Sargon wasentitled to its fees; therefore, the only issue before it was the reasonableness of that fee. The court rejected USC’s section 998 argument becausethe offer, dated June 21, 2007, was tardy — not madeat least 10 days before theinitial trial began — andit did not contain a signature line for Sargon. The court denied USC’s request for fees and considered the reasonableness of Sargon’s request pursuant to PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1096 (PLCM). The court foundthe skill level of the attorneys involved was extraordinary and the nature ofthe litigation complex, and had “no quibble” with the hourly rates or numberof hours billed. The court concluded that given the small recovery, a fee award of more than $6.2 million (including the $1.2 million already awarded) would be excessive. The court awarded Sargon $4 million in attorney fees. Defendants contend the attorney fees awarded to Sargon was unreasonable in light of the small amount of the judgment in comparison to the amountofthe requested fee award, which wasin excess of $5 million. (See, e.g., Chavez v. City ofLos Angeles (2010) 47 Cal.4th 970, 990-991 [inflated fee request permits trial court to reduce or deny fee award].) Attorney fee awards begin with the “lodestar,” which consists of the number of hours reasonably expended multiplied by the reasonable hourly rate. The lodestar figure maythen be adjusted upward or downwardbased uponfactors specific to the case to fix the fee at the fair market value of the services provided. (PLCM, supra, 22 Cal.4th at p. 1095.) The trial court considers a numberof factors in making this determination, including the nature and difficulty of the litigation, the amount of fees involved,the skill required to handle thelitigation and the skill actually employed, and the successor failure of the litigation. (/d. at p. 1096; see also Harman v. City and County ofSan Francisco (2007) 158 Cal.App.4th 407, 416, fn. 5 (Harman).) “In short, after determining the lodestar amount, the court shall then “consider whether the total award so calculated underall of the circumstances of the case is more than a reasonable amountand,if so, 35 shall reduce the . . . award so that it is a reasonable figure.”’” (EnPalm, LLC v. Teitler (2008) 162 Cal.App.4th 770, 774.) Ultimately, the trial judge has discretion to determine the value of professional services rendered, but because determination of the lodestar figures is fundamental to the calculation of the fee award, exercise of that discretion must be based on that method. (Serrano v. Priest (1977) 20 Cal.3d 25, 48-49.) The experiencedtrial judge is the best arbiter of the value of professional services rendered in his or her court, and the award will not be disturbed unless it is “clearly wrong,” that is, an abuse of discretion. (PLCM, supra, 22 Cal.4th at p. 1095.) The party challenging a fee award has the burden of demonstrating error. (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1140-1141.) Here, we find no abuse of discretion in the award of fees given the potential size of lost profit damages soughtin this case (at a minimum, $220 million) and that defendants valued the case at $8 million, as evidenced by their section 998 offer. The trial court presided over a long and complicated case. In addition, other factors militate in favorofthe trial court’s award: the size and complexity of the case, the reputation and expertise of counsel involved; the requirement of expert testimony; the numerous motions (demurrer, motion for judgment on the pleadings, summary judgment, motion in limine, motion for attorney fees) and depositions involved. The case has involved two trials and one appeal, as well as numerous hearings. Defendants nonetheless argue Sargon’s attorney fees award must be reduced because it exceeded $2.2 million in fees on remand to obtain the sameresult asthe first trial. (See, e.g., Hensley v. Eckerhart (1983) 461 U.S. 424, 434 [103 S.Ct. 1933] [lodestar should not include hours not reasonably expendedin pursuit of successful claims].) Hensley directs that the court must consider whetherthe plaintiff failed to prevail on claims unrelated to the claims on which he or she succeeded. (/bid.) But attorney fees need not be apportioned where they are incurred for representation on an issue common to both a cause of action on which fees were proper and one in which they were not allowed. (Harman, supra, 158 Cal.App.4th at p. 417.) If successful and unsuccessful claimsare related, the trial court must evaluate the significance of the 36 overall relief obtained by the plaintiff in relation to the hours expended. (Hensley, at eeeesp. 435.) The court may reduce the lodestar calculation “‘“if the relief obtained, however significant, is limited in comparisonto the scopeofthe litigation as a whole.”’” (Harman, at p. 418.) Here, Sargon’s trial claims related to the breach of contract claims; the tort claims had been dismissedpriorto trial. Thus, the bulk of fees were incurred on a successful claim. In addition, the record indicatesthe trial court considered al! of the necessary factors in awarding fees, and in fact reduced the fees based on Sargon’s failure to obtain lost profit damages on remand. Finally, we note that in Meister v. Regents of University of California (1998) 67 Cal.App.4th 437, the court held that a trial court had discretion to reduce an attorney fees award by the amountof fees incurred bythe plaintiff after the plaintiff declined an informal settlement offer for an amount greater than that recoveredattrial, relying on the policy underlying section 998. (/d. at p. 452.) But in Greene v. Dillingham Construction N.A., Inc. (2002) 101 Cal.-App.4th 418, the court held that section 998 has no application to an informalsettlement offer made during mediation where the offeree recoveredlessat trial. Greene disagreed with Meister that an informal settlement offer could be used as a factor in determining the reasonablenessof attorney fees. Greene reasonedin part that Meister ignored the procedural protections afforded by section 998, andits punitive provisions had no application to a confidential mediation. (/d. at pp. 425-426.) We decline to extend Meister to circumstances where,as here, the section 998 offer failed to give the offeree proper notice that the punitive provisions of the statute would apply if the offer were declined. Defendants make no further attack on the fee award to Sargon. Nor do they suggest that if we reverse for a new trial on lost profits, we need to reverse the fee award. So weleave the award asit is. Any request for appellate attorney fees should be presented in the first instance to the trial] court on remand. (See Cal. Rules of Court, rule 3.1702(c).) 37 I DISPOSITION The judgmentis reversed and the matter is remanded for a newtrial on lost profits. The orders (1) sustaining the demurrerto plaintiff's claim for breach of the covenantof good faith and fair dealing, (2) granting the motion for judgment on the pleadings as to plaintiff's breach of contract claim against defendant Winston W. L. Chee, (3) granting summary adjudication on plaintiff's fraud claim, and (4) awarding attorney fees to defendant Winston W.L. Chee and plaintiff, respectively, are affirmed. The parties are to bear their own costs on appeal. NOT TO BE PUBLISHED. MALLANO,P.J. I concur: CHANEY,J. 38 JOHNSON,J., Concurring and Dissenting. I join in the majority decision in all respects except that I respectfully dissent from the majority’s ruling in part II.D finding that the trial court abusedits discretion in excluding Skorheim’s expert testimony on Sargon’s lost profits, and reversing for a new trial on the issue oflost profit damages. I. In overturningthe trial court’s rejection of Sargon’s alchemic approach to damages, the majority misapplies the standard of review on evidentiary rulings. Abuse of discretion requires reversal only wherethetrial court’s ruling is arbitrary, capricious, and beyond the bounds of reason. (Tudor Ranches, Inc. v. State Comp. Ins. Fund (1998) 65 Cal.App.4th 1422. 1431; Walker v. Superior Court (1991) 53 Cal.3d 257, 272.) Thetrial Judge’s exercise ofdiscretion is guided, however, by fixed legal principles. “*The scope of discretion alwaysresides in the particular law being apphied,1.e., in the “legal principles governing the subject of [the] action... .” Action that transgresses the confines of the applicable principles of law is outside the scope of discretion and wecall such action an “abuse”of discretion.”” (Department ofParks & Recreation v. State Personnel Bd. (1991) 233 Cal.App.3d 813, 831.) The burden is on the complaining party to establish abuse ofdiscretion, and an appellant’s showing on appealis insufficient if it presents a state of facts which simply afford an opportunity for a difference of opinion betweenthetrial and appellate courts. Un re Marriage ofEben-King & King (2000) 80 Cal.App.4th 92, 118.) To say that a court has discretion in a given area of the law is to say thatit is not bound to decide the question one way rather than another. Accordingly, an abuse of discretion standard requires appellate courts to allow different trial courts to reach different conclusions regarding the admissibility of evidence. The deference accordeda trial court’s discretionary ruling is based on the rationale that the trial court is a presumptively more capable decisionmakerbecauseofits “observation of . .. witnesses [and] superior opportunity to get the ‘feel of the case.”” (Noonan v. Cunard Steamship Co. (2d Cir. 1967) 375 F.2d 69, 71 (lead opn.of Friendly, J.).) Judge Friendly and other legal scholars have suggested that discretion is appropriate where the facts and circumstances involved are “endlessly variable, it is not possible to devise a rule of law or principle of decision to cover any group ofsituations.” (Rosenberg, Appellate Review of Trial Court Discretion (1978) 79 F.R.D. 173, 181.) Discretion supported bythis rationale is transitory until experience in the area of law grows, and “appellate courts are able to fashion criteria for rules that ultimately harden into rules or, at least, into guiding principles.” (/bid.) As a consequence, the abuse of discretion standard of review focuses more on the process ofthe trial court’s decisionmakingthanits result. We should be more concerned with whetherthe trial court reached a reasoned result based on the applicable law than whether we would have reached the same result. Where, as here, the law doesnotoffer precise parameters to the quantum ofproof required to establish lost profit damages, a trial court must be permitted to draw the line in the sand, either letting the evidence in as meeting the certainty threshold, or excluding it as below that threshold. The placementof that threshold is left to the trial court so long as it is within the boundsofthe law. i. Pursuant to Evidence Code section 801, subdivision (a), a person who qualifies as an expert may give testimony in the form ofan opinionif the subject matter of that opinion is “sufficiently beyond common experiencethat the opinion of [the] expert would assist the trier of fact.” Jennings v. Palomar Pomerado Health Systems, Inc. (2003) 114 Cal.App.4th 1108, explained the role of expert testimonyattrial. “[E}]ven when the witness qualifies as an expert, he or she does not possess a carte blanche to express any opinion within the area of expertise.” (/d. at p. 1117.) An expert’s opinion based upon assumptions of fact without evidentiary support, or an expert’s opinion based upon speculative or conjectural factors, has no evidentiary value and maybe excluded. “Exclusion of expert opinions that rest on guess, surmise or conjecture [citation] is an inherent corollary to the foundational predicate for the admission of the expert testimony: will the testimony assist the trier of fact to evaluate the issues it must decide?” (/bid.) Further, an expert’s opinion that “something could be true if certain assumed facts are 2 true, without any foundation for concluding those assumedfacts exist in the case before the jury, does not provide assistance to the jury because the jury is charged with determining what occurred in the case before it, not hypothetical possibilities. ... An expert who gives only a conclusory opinion does not assist the jury to determine what occurred, but instead supplants the jury by declaring what occurred.” (/d. at pp. 1117— 1118.) Where expert testimonyis based upon assumptions of fact not supported by the evidence, “[i]t is not enoughto say that the expert’s false assumptions of fact can be exposed through cross-examination. If the expert opinion is based upon assumptions of fact that are not supported by the evidence,it is speculative. It should never be admitted ....” (2 Dunn, Recovery of Damages for Lost Profits, (6th ed. 2005) § 7.15, p. 612. Lost profits are a species of special damages. (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 975.) California has long recognized “the general principle that damagesfor the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent.” (Grupe v. Glick (1945) 26 Cal.2d 680, 693 (Grupe); Sanchez- Corea v. Bank ofAmerica (1985) 38 Cal.3d 892, 907.) “It is enough to demonstrate a reasonable probability that profits would have been earned except for the defendant’s conduct.” (S.C. Anderson, Inc. v. Bank ofAmerica (1994) 24 Cal.App.4th 529, 536.) oce Moreover,“*[w]here thefact of damagesis certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. [Citation.]’ [Citation.]” (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1585.) “In reviewing a damage award oflost businessprofits, the appellate court must couple the substantial evidence concept with recognition that evidentiary imponderables are unavoidable.” (Guntert v. City of Stockton (1976) 55 Cal.App.3d 131, 143.) “The law will allow reasonably calculated damagesevenif the result is only an approximation.” (/bid.) Nonetheless, “where anticipatedprofits dependent uponfuture events,” they would be allowedonly “where their nature and occurrence can be shown by evidence ofreasonable reliability.” (Grupe, supra, 26 Cal.2d at p. 693, italics added.) Loss of prospective profits for a new business may berecovered if the evidence showswith reasonable certainty both their occurrence and extent. Courts have permitted recovery for lost profits from a new business where owners have experience in the business they are seeking to establish, and where the businessis in an established market. (Resort Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1698.) Evidence of lost profits may also be established with reasonable certainty with the aid of expert testimony, economic andfinancial data, and business records of similar enterprises. (Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 884.) Il. Here, the trial court’s exclusion of Skorheim’s projections did not exceed the bounds ofreason, nor wasits decision arbitrary or capricious. Rather, its decision was founded on a detailed, methodical and well-reasoned examination of the law of contracts andthe limits on lost profits damages. While the law specifies that damages must be reasonably certain, the law. cannot and does not draw a line demarcating the degree of certainty required by the idiosyncrasies of each case. Where a motion in limine to exclude damagesis the issue, the task of determining the threshold measure of certainty to permit Skorheim’s opinion to go to the jury should be left to the gatekeeping function ofthe trial court, in the context of its evidentiary rulings after an evaluation ofall of the facts, evidence, and arguments. Here,the trial court drew a very reasonable line in the sand with its ruling excluding Sargon’s evidence of lost profit damages. I see no justification for this court to overturn that decision. At the conclusion of the Evidence Code section 402 hearing,the trial court found that Skorheim’s testimony “leaves the determination of up to a billion dollars of lost profit damages to pure speculation,” and granted defendants’ motion. The court found Skorheim’s opinion wasnot based on Sargon’s historical profits or those of a similar business; Skorheim used assumptionsthat had no reasonable factual foundation; he gave an opinion beyondhis level and area of expertise; and there was no California legal authority supporting market share lost profits. As the majority opinion sets forth, the court reasoned as follows: “{A]n established business may generally recoverfor lost profits because their extent may be ascertained with reasonable certainty from the company’s past volume of business and other provable data relevant to future sales. Lost profits may be established with expert testimonyand be based on economic and financial data, market surveys and analysis, business records of similar enterprises, but there must be a similarity between the facts forming the basis of the profit project and the business opportunity destroyed. (Kids’ Universe v. In2Labs, supra, 95 Cal.App.4th at p. 885.) Ifa lost profits analysis contains a comparison to other businesses, those businesses must be similar. (Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 288 (Parlour Enterprises).)’ (Maj. opn. ante, at p. 27.) “The trial court concluded Sargon relied on data that was not analogousto Sargon’s business. Skorheim used industry leaders, all multi-million and multi-billion dollar international companies. ‘The only thing these established companies have in common with [Sargon] is that they all sell or make dental implants. In all other respects, in areas the MRGreport deemsrelevant, such as size, history, product line, sales force, access tofinancing, among others, they are worlds apartfrom Sargon.”” (Maj. opn. ante, at p. 27, italics added.)! At the Evidence Code section 402 hearing, Skorheim could not identify any other business metric Sargon had in commonwith the industry leaders other than the three drivers. For example, while Sargon hada five percent profit in 1997, he used Nobel Biocare and Straumann’s profits, which were at 30 percent. “As a result, Skorheim’s ‘projections are wildly beyond, by degrees of magnitude, anything Sargon has ever experienced in the past. Under the 20% market share scenario, for example, [Sargon] would see its profits climb by 534.4% the first year, and by over 1 Aithoughinitially Skorheim had deemed Sargon’spast performanceirrelevant, during the hearing Skorheim indicated that his damages analysis could be based upon Sargon’s sales and profit during 1998. 157,000% by 2009.’” (Maj. opn. ante, at p. 27.) Thus, Sargon wasnot similar to the Big Six under any relevant, objective business measure. “The court also found that comparison of “degrees of innovation” failed to give the jury standards from which it could make a rational decision, and wasinherently speculative and subjective. Although the ranking of innovativeness among the market leaders was central to Skorheim’s opinion, he had inexplicably testified he did not know how the market leaders comparedto each other, and refused to give an opinion on the issue. Ultimately, the only evidentiary support for the percentage market share scenarios came from Skorheim’s observations of the marketplace, and his conclusion that innovative products generated more sales. To the court, this was nothing more than a tautology.” (Maj. opn. ante, at p. 28.) “The court also found Skorheim lacked expertise in the dental industry, and therefore his opinion was pure speculation. Skorheim did nothing more than read the lay press and conductinformal interviews. Finally, the court found Skorheim’s opinion was based uponspeculative assumptions, including a series of successful clinicaltests, marketing efforts, research and development, training of dentists, and relationships with universities; Skorheim believed ‘by 2007 Sargon would have made the seamless transition from a three-person operation to sharing industry leadership with Nobel Biocare, a multi-million dollar international corporation.’” (Maj. opn. ante, at p. 28.) There is nothing tn this ruling that indicates the trial court acted in an arbitrary, capricious fashion, was guided by whim rather than the rule of law, or exceeded the boundsofreason. IV. In spite of the trial court’s well-reasoned and sound exerciseofits discretion within the boundaries of certainty described by the case law, the majority asserts “Sargon has the better argument here,” and concludes “Palm Medical Group[, Inc. v. State Comp. Ins. Fund (2008) 161 Cal.App.4th 206] is more on point than Parlour Enterprises|, supra, 152 Cal.App.4th 281],” drawing its own line in the sand. (Maj. opn. ante,at p. 30.) In so doing, the majority concedes my point: under the abuse ofdiscretion standard,it was for the trial court to determine “who had the better argument.” This determination of whether Palm Medical Group or Parlour Enterprises governed the exclusion of the methodology used here wasproperly left to the tria] court under the abuse of discretion standard because those cases defined the scope ofthe discretion vested in the trial court, not the precise position wherethe line is to be drawn. As explained in Rosenberg, Appellate ReviewofTrial Court Discretion, supra, 79 F.R.D. at p. 181, here in the realm oflost profits damages there are many factual variables and somesignposts, but the landscape has not hardened into one concrete rule of law compelling one result or another. By ignoring the function of discretion in trial court evidentiary rulings, the majority apparently applies a de novo standard of reviewto what is unmistakablyan abuse of discretion standard, and usurps the function ofthe trial court wherethe facts of the case do not justify such interposition. Furthermore, while I admittedly share with the trial court a healthy dose of skepticism over Skorheim’s unyieldingly optimistic projections for Sargon’s market share growth and while I struggle to see a nexus between those projections and business and economicreality, this dissent nonetheless does not stem from the havoc that Skorheim’s methodology may wreak upon reasonable damagecalculations but from the damage doneto the trial judge’s reasonable and prudently exercised judgment on an evidentiary issue over which he and he alone should have decisional authority, absent arbitrariness and capriciousness. Nothing in the trial judge’s reasonable, straightforward and clearly articulated evidentiary ruling bears even a smidgeonofarbitrariness or capriciousness.? 2 Indeed,the trial court even considered permitting Sargon to put on evidence about the market share of AstraTech, the smallest comparator company. After careful consideration, the court however concluded that even AstraTech was too dissimilar to Sargon to warrant admission of Skorheim’s testimony concerning its market share. The court stated there was a problem with the “‘beauty contest’” aspect of the comparison because it required too many assumptions to be made and gavethe jury no standards. (Maj. opn. ante, at p. 26.) The majority, however, asserts that AstraTech was “sufficiently similar” to Sargon, and Skorheim’s testimony regarding AstraTech was supported by “substantial evidence, not speculation.” (Maj. opn. ante, at p. 30.) This 7 Consequently, because the quantum ofcertainty required to establish lost profit damagesvaries greatly from case to case, the majority has found an abuse ofdiscretion and substituted its judgmentfor that of the trial court. However, it is precisely because the standard ofreview tolerates this variation in the case law in permitting a trial court to choose amongpossible rulings within the confines of the law that the path the majority takes today dangerouslyerodes the function of the trial court in making evidentiary rulings on lost profit damages. Asanotherstate’s supreme court has summarized, “[wJhere .. . the exercise of discretion turns upon a factual determination made bythetrier of the facts, an abuse of discretion involvesfar more than a difference in judicial opinion betweenthetrial and appellate courts. The term discretion itself involves the idea of choice, of an exercise of the will, of a determination made between competing considerations. In order to have an ‘abuse’ in reaching such determination, the result must be so palpably and grossly violative of fact and logic that it evidencesnot the exercise of will but perversity of will, not the exercise ofjudgment but defiance thereof, not the exercise of reason but rather of passion or bias.” (Spalding v. Spalding (Mich. 1959) 94 N.W.2d 810, 811-812, italics added.) The case before us exposes the need for a clear statement from our Supreme Court to render guidanceto trial and appellate courts as to the role of discretion in evidentiary rulings regarding the necessary measure of proofto establish lost profit damages. Where, as here, an expert testifies using a methodology not previously sanctioned by any court to calculate lost profits for an unestablished business, thetrial court’s discretion to exclude evidence it deems speculative should not be disturbed on appeal. Thetrial court did not commit legal error. Absent arbitrariness and capriciousness,the trial court’s evidentiary ruling regarding the admissibility of expert dissent reiterates such a determination is the provinceofthetrial judge, not the appellate court. testimony—notthe de novoruling of the appellate court—should govern this case. I would affirm the ruling ofthe trial court excluding Skorheim’s expert testimony. JOHNSON,J. PROOF OF SERVICE Tam employedin the County of San Mateo,State of California. I am overthe age of eighteen years and nota party to the within action; my business address is 555 Twin Dolphin Drive, 5th Floor, Redwood Shores, California 94065-2139. On March 18, 2011, I served true copies of the following document(s) described as PETITION FOR REVIEWontheinterested parties in this action as follows: Allan Browne Eric George BROWNE WOODS GEORGELLP 2121 Avenueof the Stars, 24th Floor Los Angeles, CA 90067 Attorneys for Plaintiff and Appellant Sargon Enterprises, Inc. Clerk of Court Los Angeles Superior Court Room 2004 111 North Hill Street Los Angeles, CA 90012 Clerk of Court California Court of Appeal Second District Court of Appeale Ronald Reagan State Building 300 South Spring Street, 2nd Floor Los Angeles, CA 90013 BY MAIL: Iam "readily familiar" with the practices of Quinn Emanuel Urquhart & Sullivan, LLP for collecting and processing correspondence for mailing with the United States Postal Service. Underthat practice, it would be deposited with the United States Postal Service that same day in the ordinary course of business. I enclosed the foregoing in sealed envelope(s) addressed as shown above, and such envelope(s) wereplaced for collection and mailing with postage thereon fully prepaid at RedwoodShores, California, on that same day following ordinary businesspractices. BY OVERNIGHTDELIVERY: I deposited such document(s) in a box or otherfacility regularly maintained by the overnight service carrier, or delivered such document(s) to a courier or driver authorized by the overnightservice carrier to receive documents, in sealed envelope(s) or package(s) designated by the overnight service carrier with delivery fees paid or provided for, addressed to the person(s) being served. I declare under penalty of perjury underthe lawsof the State of California that the foregoing is true and correct. Executed on March 18, 2011, at Redwood Shores, California. SMbbi lier. AdshielH. Bromberg —