Sargon Enterprises v. Usc-a Different Perspective



Sargon Enterprises v. USC-A Different Perspective

By Edward J. Imwinkelried and David L. Faigman

Last year this journal published an article by Robert Knaier discussing the California Supreme Court case of Sargon Enterprises, Inc. v. USC, titled A Gatekeeper Embraced: Expert Opinion Testimony and the Long Road from Daubert to Sargon, 26:3 Cal. Litigation 37. This article analyzes Sargon from a slightly different perspective β€” that of the authors of the law review article that Sargon relied on.

In 1923, the District of Columbia Court of Appeals decided Frye v. United States (D.C. Cir. 1923) 293 Fed. 1013. In Frye, the court announced that to serve as a basis for expert testimony, a scientific theory must be generally accepted in the relevant expert circles. By the early 1970s, Frye had become the overwhelming majority view in the United States. In 1976, the California Supreme Court adopted that test in People v. Kelly (1976) 17 Cal.3d 24. Although the United States Supreme Court abandoned the Frye test in 1993 ( Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993) 509 U.S. 579), the California Supreme Court quickly made it clear that it did not intend to shift to Daubert’s empirical validation/reliability standard. (People v. Leahy (1994) 8 Cal.4th 587.)

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On the one hand, California courts tended to limit the scope of their version of Frye to novel, instrumental, purportedly scientific techniques. (People v. McDonald (1984) 37 Cal.3d 351.) On the other hand, while most states gradually embraced Daubert, California steadfastly adhered to the general acceptance test. As support for Frye waned, some hoped the California Supreme Court would seize the opportunity presented by In re Lockheed Litigation Cases (2005) 126 Cal.App.4th 271, review granted Apr. 13, 2005, 27 Cal.Rptr.3d 360, to embrace a variation of Daubert. In Lockheed, the Court of Appeal’s decision read as if it had been written by a federal court applying Daubert. However, when the Supreme Court eventually dismissed review, that hope was dashed. (Id., review dismissed Nov. 1, 2007, 83 Cal.Rptr.3d 478.)

The issue surfaced again in Sargon Enterprises, Inc. v. USC (2012) 55 Cal.4th 747. Sargon Enterprises was a dental implant manufacturer that patented a new procedure allowing an implant to be completed in a single day. Sargon contracted with USC to conduct a clinical study that Sargon intended to use in its publicity campaign for the procedure. Sargon claimed that USC "sabotaged" the study by failing to produce periodic reports that the contract required. At trial, Sargon prevailed on liability. However, before trial, the judge granted USC’s motion to exclude testimony about Sargon’s lost profits as unforeseeable. The Court of Appeal ruled that the judge erred by misapplying the foreseeability principle, and remanded for a new damages hearing. (Id. at p. 754.)

At the remand hearing, Sargon called a certified public accountant, James Skorheim. In 1998, the year before filing suit, Sargon’s net profits were $101,000. Nevertheless, comparing the novelty of Sargon’s new implant procedure to the innovativeness of "the Big Six" in the global implant market, Skorheim opined that during the following decade Sargon would have garnered a substantial market share. Depending on how the innovativeness of Sargon’s procedure struck the public, the expert asserted that Sargon would have gained a 3.75%, 5%, 10%, or 20% market share β€” yielding either a quarter of a billion dollars, a third of a billion dollars, $600,000, or $1.2 billion in profits. (Sargon Enterprises v. USC, supra, 55 Cal.4th at pp. 759-760.) Assaying a Daubert-style analysis, the trial judge barred Skorheim’s testimony. Once again the appellate court decided that the trial judge erred. USC sought Supreme Court review.

In a unanimous opinion approvingly citing Daubert and its progeny β€” General Electric Co. v. Joiner (1997) 522 U.S. 136 and Kumho Tire Co. v. Carmichael (1999) 526 U.S. 137 β€” the Supreme Court affirmed. Echoing Daubert, Justice Chin emphasized that trial judges have a "gatekeeping" responsibility to exclude "unreliable" expert testimony. (Sargon, 55 Cal.4th at pp. 769-772.) Sargon’s endorsement of Daubert seemed so thoroughgoing that some commentators declared that Sargon represents "a sea change," aligning "California’s law of expert opinion admissibility with post-Daubert federal law." (Barnes, High Court Changes Evidentiary Standards, Recorder (Dec. 6, 2012) pp. 1-2.)

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Although Sargon is a significant decision, like Mr. Knaier, we believe that it is premature to conclude that California is now squarely within the Daubert camp. To assess Sargon’s impact, we briefly describe the teachings of Daubert, Joiner, and Kumho Tire and review Sargon’s comments about those decisions. In the end, we conclude that, in several respects, Sargon stops short of wholeheartedly adopting the federal approach to expert testimony.

The Daubert Trilogy on the Admissibility of Expert Testimony

Daubert is the seminal case. There, Justice Blackmun concluded that the Federal Rules of Evidence could not bear the interpretation that they codified the traditional general acceptance test. Justice Blackmun derived a new validation/reliability test from the wording of Federal Rule of Evidence 702, which refers to "scientific…knowledge." Drawing on amicus briefs filed by scientists and scientific organizations, he adopted a methodological definition of the phrase: "Science…represents a process for proposing and refining theoretical explanations about the world that are subject to further testing and refinement. [I]n order to qualify as ‘scientific knowledge,’ an inference or assertion must be derived by the scientific method. Proposed testimony must be derived by appropriate validation…." (Daubert, supra, 509 U.S. at p. 590.)

Justice Blackmun added that the testimony must "fit" the facts of the case. (Daubert, 509 U.S. at p. 591.) He stated that in evaluating the proffered testimony, the trial judge serves as a gatekeeper (id. at p. 597), determining under Federal Rule of Evidence 104(a) whether the testimony, more likely than not, amounts to reliable "scientific. knowledge." (Id. at p. 592.) He explained that in conducting the evaluation, the judge may consider a variety of factors, including whether the basis for the expert opinion was testable and had been adequately tested, had been subject to peer review and been published, had a documented error rate, and was generally accepted in the pertinent field. (Id. at pp. 593-594.)

Next in the trilogy is Joiner. In Joiner, the plaintiff alleged that workplace exposure to chemical PCBs had accelerated the onset of his small-cell lung cancer. The plaintiff’s experts relied on animal studies. The trial judge barred their opinions, reasoning that they did not "fit" the facts in Joiner because of several differences between the animal studies and the plaintiff’s facts:

The studies involved infant mice that had developed cancer after being exposed to PCBs. The infant mice in the studies had had massive doses of PCBs injected directly into their peritoneums or stomachs. Joiner was an adult human being whose alleged exposure to PCBs was far less than the exposure in the animal studies. The PCBs were injected into the mice in a highly concentrated form. The fluid with which Joiner had come into contact generally had a much smaller PCB concentration…. The cancer that these mice developed was alveologenic adenomas; Joiner had developed small-cell carcinomas.

(Joiner, supra, 522 U.S. at p. 144.)

Given these differences, the judge ruled that the animal studies lent inadequate support to the experts’ opinions. Chief Justice Rehnquist agreed that the trial judge has the right to inquire whether the conditions obtained in the studies are sufficiently analogous to those in the instant case. In the Chief Justice’s opinion, the judge had the discretion to conclude that the experts had engaged in unwarranted extrapolation. (Joiner, 522 U.S. at p. 146.) In the Chief Justice’s words, the judge may test the connection between "the [empirical[] data" cited by the expert and exclude the opinion when "there is simply too great an analytical gap" between the data and the opinion.

The Supreme Court’s 1999 Kumho Tire decision completes the trilogy. As it became clear that federal courts were rigorously applying the requirement for showing reliability, some practitioners advanced a statutory construction argument for escaping that requirement. Daubert derived the validation standard from "scientific knowledge" in Rule 702, which, in the alternative, referred to "scientific, technical or other specialized knowledge." These practitioners urged that Daubert’s reliability test applied only to purportedly scientific knowledge. Thus, they argued, if the expertise was "technical" or "specialized," Daubert did not apply. Justice Breyer rebuffed that argument. He pointed out that all the adjectives modify "knowledge." Congress’s choice of that noun signified that to be admissible, any expert testimony must rest on more than subjective belief or unsubstantiated speculation. (Kumho Tire, 526 U.S. at p. 147.)

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However, Justice Breyer cautioned that the factors listed in Daubert are most apt for a scientific model and that it may be impossible to fit a square, non-scientific peg into a round, scientific hole. The Court therefore gave trial judges discretion to select factors that are "reasonable measures of the reliability of [non-scientific] expert testimony." (Kumho Tire, 526 U.S. at p. 152.) With that caveat, Kumho Tire clarified that the requirement for showing reliability applies to all types of expertise.

The Sargon Court’s Comments on the Cases in the Trilogy

As Mr. Knaier noted, Sargon approvingly cites all three cases in the federal trilogy. More importantly, Sargon endorsed many of the trilogy’s essential teachings.

Sargon imports Daubert’s "gatekeeper" terminology into California practice. More fundamentally, Sargon defines the trial judge’s responsibility in a manner strikingly similar to Daubert’s conception of the judge’s role. Justice Blackmun tasked federal judges to shield juries from "unreliable" expert opinions by determining whether the expert’s opinion is "supported by appropriate validation." (Daubert, 509 U.S. at p. 590.) Sargon states that California judges have a similar responsibility to exclude "unreliable" opinions by "determin[ing] whether, as a matter of logic, the studies and other information cited by experts adequately support" the expert’s opinion. (Sargon, 55 Cal.4th at p. 772.)

Likewise, there are parallels between Sargon and Kumho Tire. Kumho Tire’s central holding is that the foundational requirement for a showing of reliability applies to every species of expertise, even if the expert labels the expertise "non-scientific." Justice Chin’s opinion makes no distinction between the various types of expertise. The gatekeeping standards prescribed in Sargon apply across the board to any expert testimony.

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Although there are commonalities between Sargon and Daubert and Kumho Tire, the most striking parallel is to Joiner. Joiner empowered trial judges to assess the aptness of the analogy between the conditions in the empirical studies cited by the expert and the facts of the pending case. In Sargon, the trial judge conducted such an assessment. Justice Chin enumerated the "objective business measures," such as number of employees and sales representatives that the judge concluded distinguished Sargon from the Big Six corporations Skorheim had analogized to. (Sargon, 55 Cal.4th at p. 778.) Just as the Joiner judge properly concluded the animal studies were "dissimilar to the facts presented in" that case (522 U.S. at p. 143), the Sargon judge correctly decided "Sargon was dissimilar to all of the Big Six." (Sargon, 55 Cal.4th at p. 778.)

The Limits of the Sargon Opinion

In Sargon, the California Supreme Court took a major stride toward joining the ranks of the majority of states subscribing to Daubert. However, there are two respects in which Sargon differs from the federal approach.

First, Sargon expressly states that in California, the Frye standard still governs the admissibility of "new scientific techniques" (Sargon, 55 Cal.4th at p. 772, fn. 6) β€” raising the possibility that when a proponent offers testimony about a novel, instrumental, purportedly scientific theory or technique, the testimony must run the gauntlet of Frye as well as Sargon.

Second, a close reading of Sargon demonstrates that when Justice Chin described the nature of the inquiry under Sargon, he did not go as far as Justice Blackmun. Justice Chin stated that trial judges should conduct "a circumscribed inquiry" to "determine whether, as a matter of logic, the studies and other information cited by the experts adequately support the conclusion that the expert’s general theory or technique is valid." (Sargon, 55 Cal.4th at p. 772.) Justice Chin quoted that language directly from a law review article we authored (Imwinkelried & Faigman (2009) Evidence Code Section 802: The Neglected Key to Rationalizing the California Law of Expert Testimony, 42 Loy.L.A. L.Rev. 427), which was based on an amicus brief we submitted in Lockheed. That article contended that under Evidence Code section 802, the court could accord trial judges the power to make a "sufficiency" determination, that is, whether "as a matter of logic" the empirical data justifies or warrants the expert’s final opinion. (Id. at p. 449.) Sargon embraced this contention. In Daubert, however, Justice Blackmun stated that federal judges make their decision under Federal Rule of Evidence 104(a), authorizing judges to weigh the credibility of the foundational testimony. Sargon does not cite Evidence Code section 405, California’s counterpart to Federal Rule 104(a). Thus, Sargon stops short of authorizing as probing an inquiry as Daubert. Courts may eventually go that far. (See In re Robert B. (1985) 172 Cal.App.3d 763.) However, we are not there yet.

In forecasting Sargon’s long-term impact, consider the facts of the case as well as the opinion’s spirit. The facts in Sargon were extreme. Even the most "circumscribed inquiry" compelled exclusion. If a jury had based a verdict on Skorheim’s largest estimate of the company’s profits, it would have found that Sargon’s profits had skyrocketed by 157,000% β€” "wildly beyond…anything Sargon had ever experienced in the past." (Sargon, 55 Cal.4th at p. 762.) Thus, the court never had to determine the applicability of Evidence Code section 405 or explore the full parameters of this new gatekeeping obligation. Given the unusual facts in Sargon, later courts may find it easy to distinguish the case. It is also important to note that Justice Chin repeatedly stressed that the Seventh Amendment counsels that judges must be "exceedingly careful not to set the threshold to the jury room too high." (Id. at p. 769.) As Mr. Knaier concluded, only time will tell how high the California courts fix that threshold.

Edward Imwinkelried is a professor of law at the University of California, Davis. David Faigman is a professor of law at the University of California, Hastings College of Law.

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