Measuring Business Interruption Losses and Other Commercial Damages
Table of Contents
1. Introduction
- Development of the Field of Litigation Economics.
- Lost Profits Business Interruption Analysis Compared to Personal Injury and Employment Litigation.
- Qualifications of an Economic Expert.
- Qualifications of an Accounting Expert on Damages.
- Interdisciplinary Nature of Commercial Damages Analysis.
- Difference Between Disciplines of Economics and Finance.
- Finding a Damages Expert.
- Critically Reviewing a Potential Expert’s Curriculum Vitae.
- Getting the Damages Expert on Board Early Enough.
- Court’s Position on Experts on Economic Damages.
- Standards for Admissibility of Expert Testimony.
- Expert Reports.
- Defense Expert as a Testifying Expert, Not Just a Consultant.
- Quantitative Research Evidence on the Benefits of Calling a Defense Expert.
- Treatment of the Relevant Case Law.
- Legal Damage Principles.
- Other Types of Damages Cases.
- Summary.
- References.
2. Economic Framework for the Lost Profits Estimation Process
- Foundation for Damages Testimony.
- Role of Assumptions in Damages Analysis.
- Hearsay.
- Approaches to Proving Damages.
- Causality and Damages.
- Using Demonstrative Evidence to Help the Client Understand Its Losses or Lack of Losses.
- Causality and Loss of Customers.
- Graphical Sales Analysis and Causality.
- Causality and the Special Case of Damages Resulting from Adverse Publicity.
- Length of Loss Period: Business Interruption Case.
- Length of Loss Period: Plaintiff Goes out of Business.
- Length of Loss Period: Breach of Contract.
- Methodological Framework.
- Summary.
- References.
3. Economic Analysis in Business Interruption Loss Analysis
- Macroeconomic Analysis.
- Definition of a Recession.
- Measuring Economic Growth and Performance.
- Business Cycles and Economic Damages.
- Using More Narrowly Defined Economic Aggregates.
- Overstatement of Inflation Statistics.
- Regional Economic Trends.
- International Economic Analysis.
- Marcroeconomic and Regional Economic Analysis and the Before and After Method.
- Summary.
- References.
4. Industry Analysis
- Introduction.
- Sources of Industry Data.
- Standard Industrial Classification Codes.
- New North American Industry Classification System.
- Retaining an Industry Expert.
- Conducting an Industry Analysis.
- Relating Industry Growth to the Plaintiff’s Growth.
- Other Industry Factors.
- Yardstick Approach and Industry Analysis.
- Summary.
- References.
5. Projecting Lost Revenues
- Projections versus Forecasts: Economic versus Accounting Terminology.
- Using Graphical Analysis as an Aide in the Forecasting Process.
- Methods of Projecting Lost Revenues.
- Curve-Fitting Methods and Econometric Models.
- Understanding Regression Output and Diagnostics.
- Common Problems Affecting Regression Models.
- Using Break Point or Chow Tests to Determine Break Points.
- Case Study: How the Chow Test Can Be Misapplied.
- Confidence in Forecasted Values.
- Frequency of the Use of Econometrics Techniques in Commercial Litigation.
- Seasonality and the Forecasting Process.
- Capacity Constraints and Forecasts.
- Sensibility Check for the Forecasted Values.
- Projecting Lost Sales for a New Business.
- Projecting Losses for an Unestablished Business.
- Case Study: Lightning Lube, Inc. v. Witco.
- Summary.
- Appendix.
- References.
6. Cost Analysis and Profitability
- Presentation of Costs on the Company’s Financial Statement.
- Measures of Costs.
- Profit Margins and Profitability.
- Appropriate Measure of Profitability for a Lost Profits Analysis.
- Case Study: Cost Analysis in Business Interruption.
- Burden of Proof for Demonstrating Costs.
- Fixed versus Variable Costs.
- Using Regression Analysis to Estimate Costs as Opposed to More Basic Methods.
- Pitfalls of Using Regression Analysis to Measure Incremental Costs.
- Possible Nonlinear Nature of Total Costs.
- Limitations of Using Unadjusted Accounting Data for Measuring Incremental Costs.
- Treatment of Overhead Costs.
- Capacity Constraints and Fixed versus Variable Costs.
- Must a Plaintiff Be a Profitable Business to Recover Damages?
- Mitigation of Damages.
- Cash Flows versus Net Income: Effects on the Discounting Process.
- Recasted Profits.
- Case Study: Profits That Are Not Really Profits.
- Firm-Specific Financial Analysis.
- Cross-Sectional versus Time Series Analysis.
- Summary.
- References.
7. Time Value of Money Considerations
- Determination of Interest Rates.
- Types of Interest Rates.
- Financial Markets: Money Market versus Capital Market.
- Money Market Securities and Interest Rates.
- Capital Market.
- Real versus Nominal Interest Rates.
- Determinants of Interest Rates.
- Prejudgment Losses.
- Components of the Cost of Capital.
- Discounting Projected Future Profits.
- Common Errors Made in Discounting by Damages “Experts”.
- Summary.
- References.
8. Business Valuations
- Legal Standards for Business Valuations in Business Interruption Cases.
- Lost Profits versus Lost Business Value.
- Business Valuation Framework.
- Theoretical Value of a Business.
- Public versus Private Companies.
- Business Valuation Parameters.
- Revenue Ruling 59-60 and Factors to Consider in Valuation.
- Valuation Concepts.
- Most Commonly Used Valuation Methods.
- Case Study: Applying the Discounted Cash Flow Method of Business Valuation.
- Capitalization of Earnings.
- Comparable Multiples.
- Case Study: Use of Multiples to Determine Enterprise Value.
- Adjustments and Discounts.
- References.
9. Intellectual Property
- Patents.
- Computation of Damages for Patent Infringement.
- Legal Requirements Necessary to Prove Lost Profits.
- Lost Profits Due to Price Effects.
- Lost Profits Due to Changing Cost Conditions.
- Royalty Arrangements.
- Copyrights.
- Measurement of Damages for Copyright Infringement.
- Trademarks.
- Trade Secrets.
- Summary.
- References.
10. Securities-Related Damages
- Key Securities Laws.
- Damages in Securities Litigation.
- Fraud-on-the-Market.
- Comparable Index Approach.
- Event Study Approach.
- Mergers-Related Damages.
- History of Mergers in the United States.
- Churning.
- Appendix A: Case Study: In Re Computer Associates, International, Inc.
- Appendix B: Cases Setting Holding Periods.
- References.
11. Antitrust
- Antitrust Laws.
- Antitrust Enforcement.
- Economics of Monopoly.
- Changing Pattern of Antitrust Enforcement.
- Antitrust and the New Economy.
- Monopolization and Attempts at Monopolization.
- Market Power.
- Measures of Market Concentration.
- Common Types of Antitrust Cases.
- Summary.
- References.
12. The Economics of Punitive Damages
- Evolving Position of the U.S. Supreme Court on Punitive Damages.
- Frequency of Punitive Damages.
- Frequency of Punitive Damages and the Shadow Effect of Punitive Damages.
- Purposes of Punitive Damages.
- Punishment of Corporations and Corporate Governance.
- Spillover Effects and Punishment of Corporations.
- Deterrence Theory and the Changing Litigation Environment.
- Deterrence and Regulatory Processes.
- Typical Financial Measures Used in the Determination of Punitive Damages.
- Net Worth.
- Market Capitalization.
- The Uncertain Litigation Environment.
- Summary.
- References.
Index