John Wiley & Sons, 2003.

The Comprehensive Volume on Business Interruption

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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