Financial Damages Calculations and Valuations in US Litigation: 2019 Perspective

SEGMENT 1: 
Y. David Scharf, Partner & Chair, Real Estate Loan Work-Outs, Restructurings & Foreclosures
Morrison Cohen LLP

SEGMENT 2: 
Foster C. Johnson, Attorney
Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C.

SEGMENT 3: 
Vincent E. Gentile, Partner
Drinker Biddle & Reath LLP

Speakers talking points:

• Types of Damages
  • General damages, also called “direct damages”
  • Consequential damages, also called “special damages”
  • Case law examples show these are often difficult to apply
    • Expert testimony
    • Different causes of action
    • Jury vs. non-jury trials
    • Choices of law: New York, New Jersey, and Texas
  • Expectation damages – i.e., lost profits
    • Speculative vs. not reasonably foreseeable
      • Proof hurdles
    • Recent cases and effect of New York’s Biotronik decision (2015)
    • Factors that govern the analysis:
      • Special cases: New business/lost profits cases
      • Special cases: Destruction or loss of business cases
• Contractual Provisions
  • Consequential damages
    • Can be prohibited by contract
    • Sample provisions: arguments based on language
  • Special issues involving indemnification
    • High River case
    • Indemnification provisions cannot be used as prevailing party/attorneys’ fees provisions. High bar to reverse the American Rule.
    • Third-party vs. first-party claims: Presumption that indemnification provisions protect against third-party claims unless contract states otherwise
    • Sample provisions that protect against third- and first-party claims
  • Breaches of representations and warranties/ why important
    • Provide example of contractual limitation on time to sue for breach of representations and warranties (“contractual statute of limitations”)
    • Many real estate contracts state that right to sue for breach of representations and warranties expires upon closing of title (i.e., merger; cite Court of Appeals case)
    • Provide examples of contractual provisions (a) stating that right to sue for breach of representations and warranties expires upon closing of title and (b) stating that right to sue for breach of representations and warranties survives closing. Arguments based on language
    • Recent First Department case permitting absolutely duplicative causes of action for breach of contract and fraudulent inducement
  • Liquidated damages
    • Must be specified by contract
    • Permissible unless punitive.
    • Sample provisions. Arguments based on language
  • Contractual damages cap
    • Example: vendor contracts limiting damages to fees paid to vendor.
    • Arguments to support and avoid the cap
• Damages under the UCC
  • Resale remedies for Sellers (2-706)
  • Cover remedies for Buyers (2-712)
  • How damages are measured? Difference between pre- and post-acceptance remedies
  • What is market price and when can it be recovered?
  • “Windfall damages.” Can they be recovered under the UCC?
  • Damages for willful breach
  • Duty to mitigate: commercial reasonableness and good faith
• Proving Damages
  • Economic damages vs. valuation
    • Calculation of damages often overlap with business valuation principles
    • How to determine a hypothetical loss or price
    • Actual results (assuming a harm or contemplated transaction) compared against the “but for world” (assuming the harm or transaction did not occur)
    • Reasonableness of assumptions: rates of return, sales volumes, customer growth, inflation, macroeconomic factors affecting those factors; more subjective factors like management ability, good will, brand strength in market
    • Tax consequences: S-corporation vs. C-corporation
    • Reliability of underlying support:  access to documents, availability of information, historic/projections/budgets
  • Valuation approaches: What value are you talking about
    • FMV or FV:  different standards depending on context
    • Substantive state law requirement will govern, i.e., use of discounts (DLOM or DLOC)
    • Ex ante (as of the time of the event) vs. ex post (taking later events into account)
    • Income (DCF) – typically if the information is available historical or projected
    • Comparables/Market - if available, Yardstick approach
    • Asset approach - may use for extractive industries for example
  • Expert testimony