NEI Direct, Inc. v. First USA Bank, et al.
Case type: Breach of contract and fraud
Attorneys: Scott E. Shapiro
Law Firm: Shapiro Law Offices
Venue: California Superior Court, Los Angeles County
Side:  Plaintiff
Trier of fact: Jury
Testimony Issue: Lost profits
Testimony Date: June 4, 2001
Case Summary: Plaintiff NEI, which operated and marketed discount and benefits programs to the general public, entered into an agreement with defendant banks under which the banks agreed to provide plaintiff with names and telephone numbers from its computerized database of card holders for use in plaintiff’s telemarketing program.  It return, NEI agreed to pay the bank a commission on every sale plaintiff obtained from leads in the database.  NEI contended that defendant banks breached an obligation to provide plaintiff with 3 million high-quality leads in a timely manner.  In fact, only 650,000 leads were provided over a period of several months.   Plaintiff claimed that defendants’ actions resulted in lost sales and lost profits.
Testimony summary: The main challenge facing Mr. Neches was to determine the sales NEI would have achieved if defendants had provided 3 million leads.  To do this, Mr. Neches analyzed company and industry data to develop statistics to translate leads into sales.  He determined a contact percent (of the 3 million cardholder names on the list, how many would the telemarketers have reached to make a sales pitch), a conversion percent (of those contacted, how many would have agreed to an initial trial period), an enrollment percent (of those who tried the program, how many would have enrolled for an initial year) and a renewal percent (of those who enrolled, how many would have renewed for subsequent years).  Mr. Neches applied these percentages to the 3 million leads to determine “but-for” sales and subtracted NEI’s actual sales from calculated “but-for” sales to determine lost sales.

The next step was to determine NEI’s lost profits.  To do this, Mr. Neches analyzed NEI’s financial statements to determine its marginal profit rate, which he applied to lost sales.  A key consideration in the lost profit analysis was to distinguish NEI’s lower profit for a customer’s first year in the program (due to telemarketing and start-up expenses) from its higher profit per customer in subsequent years.

Mr. Neches explained his analysis to the jury.  He testified that NEI’s past lost profits total $1,742,767 and projected future lost profits total $674,688.

Result: The jury awarded NEI $1,756,737 in damages.

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