Acme Aviation (AA) entered into an agreement with the Express Deliveries (ED) to fly packages for ED on an "as needed" basis. The agreement was for three years. After the first year, Acme Aviation was not making any money on this agreement and notified Express Deliveries that it would no longer honor the agreement. Express Deliveries was forced to find another company to fly the packages that previously would have been flown by Acme. Express Deliveries claimed that the cost of the new carrier added $\$ 250,000$ a year to its expenses. Four years after Acme Aviation defaulted on the contract, Express Deliveries filed for bankruptcy.

In a subsequent lawsuit, Express Deliveries sued Acme Aviation for $\$ 6$ million, claiming that the AD's default on the delivery contract caused Express to incur significant additional costs and this eventually forced them into bankruptcy. During discovery the following issues were uncovered:

- ED used AA for about 20 percent of its deliveries during the one year the contract was operating.

- An internal AA memo states that the marketing manager said, "I don't care what our legal obligations are under the contract with ED, we are losing money so end it." (the contract).

- During the three years prior to the start of the AA/ED contract, ED had earnings (losses) of $\$ 125,000, \$(150,000)$, and $\$(175,000)$ respectively.

- In an AA internal memo the company stated that it had lost about $\$ 300,000$ in the first year of the ED contract due, in part, to the varying volume of deliveries requested by ED throughout the year.

- AA fired the marketing person who secured the ED contract and used the ED contract as an example of poor analysis of potential sales contracts as part of the documentation for the firing.

- An ED accounting department analysis of ED's delivery costs showed that direct costs of delivery were $\$ 140,000$ per year higher for the delivery service used to replace AA. The other $\$ 110,000$ of additional costs was corporate overhead allocated to the delivery service contract.

- Ed's financial statements showed that it had losses of $\$ 175,000$ and $\$ 260,000$ during the two years after the end of the AA contract but before ED filed for bankruptcy.

- Express Delivery's asset book value at the date bankruptcy was filed was $\$ 3,500,000$, but the estimated liquidation value of its assets was estimated at only $\$ 1,000,000$.

- An ED accounting department analysis estimated that during a six-month period after AA defaulted on the delivery contract, ED had trouble finding acceptable delivery alternatives. As a result, the analysis found that the firm lost approximately $\$ 800,000$ in delivery sales.

The issue of liability here is primarily a legal one. There is little chance that accounting issues will be addressed in determining liability. For purposes of this conflict, assume that the three-year contract was binding and

that AA is liable for damages resulting from the two years it did not honor the contract.

a. You are an expert that has been hired by Express Delivery to develop a damages estimate for them that you will defend in deposition and at trial, if necessary. Using the information provided prepare a preliminary damages estimate and explain the basis for your opinion on each item. Identify any questions or information you would like to see or analyze to support your damages estimate.

b. You are an expert that has been hired by Acme Aviation to develop a damages estimate for them that you will defend in deposition and at trial if necessary. Using the information provided prepare a preliminary damages estimate and explain the basis for your opinion on each item. Identify any questions or information you would like to see or analyze to support your damages estimate.