TEA: Volume 14 (2014)

TEA.14.0 – 2014. The Earnings Analyst 14: 85pp.

TEA.14.1 – Discounting Future Losses to Present Value: Consideration of Inflation and Market Risk.  William G. Brandt.  In most venues, an award for future pecuniary damages must be reduced to present value when the court finds a Defendant liable for those losses. The Defendant’s liability is transferred from Defendant to Plaintiff when reduced to judgment at trial. The Damages Expert must assess the proper compensation for that transfer. In doing so, one must (1) understand the risk characteristics inherent in the financial instruments on which the discount rate is based, and (2) evaluate how those risks compare to the risk characteristics of the underlying loss. This article focuses on the evaluation of inflation risk and market risk in assessing the appropriate transfer price. There are two primary schools of thought regarding the appropriate discount rate to apply to future losses based, in part, on guidelines expressed by the U.S. Supreme Court in Jones & Laughlin Steel Corp. v. Pfeifer. This article evaluates those discounting approaches, and concludes that the “Short Term Rollover Method” is more effective than the “Dedicated Portfolio Method” in the matching of inflation and market risks of the damage compensation with those of the underlying losses that are being assessed.

TEA.14.2 – Proving Credit Damage and Interference with Credit Expectancy.  Thomas A. Climo.  Since the first listed credit damage and interference with credit expectancy case in 1844 (Mechanics’ Bank against Gorman), the legal profession and those experts in the legal profession responsible for quantifying the damages from such a tort have largely overlooked a real discussion of this topic. While consumer legislation and problems regarding the preemption rule in the Equal Credit Opportunity Act have a small degree of legal research (Sanders & Cohen, 2004; Conrad, 2006), the existing literature from economic experts on credit damage comprises the null set, with no papers published until 2014 in either the Journal of Legal Economics, the Journal of Forensic Economics, or The Earning’s Analyst. This paper creates a fictional case of Stan Laurel v. 1st Street Bank that allows the economic expert to see, step by step, the means for interpreting credit damage or credit expectancy events, and translating these events into dollar losses that will meet the standard of reasonableness and avoid the pitfalls often responsible for dismissal of either the economic testimony or the entire case itself (Climo, 2014, “Seven Things”). This article presents the road map an economic expert may be looking for when taking on a new credit damage or credit expectancy case.

TEA.14.3The Role of an Economic Expert in Chapter 11 Bankruptcy Matters: Common & Unique Engagements.  Allyn Needham.  Economic experts may be called on to provide a number of services in Chapter 11 bankruptcy cases. The most common of these services is the analysis of the interest rate to be paid over time on secured claims and the valuing of the bankrupt business or a portion of the bankrupt estate. None of these functions are exclusive to the bankruptcy courts. However, in applying commonly used techniques, an expert must be aware of how bankruptcy courts have treated these methodologies. This overview will provide explanations of the four methods used for analyzing interest rates in Chapter 11 cram down matters and the most commonly used methods for performing business valuations. Bankruptcy and appellant decisions explaining their opinions on the use of these methods have also been provided. In addition, each section will discuss unique situations that experts have been asked to address when considering a bankrupt estate.

TEA.14.4The Valuation of Household Services Overlooked by ATUS and by Most Personal Injury and Wrongful Death Awards.  William R. Landsea.    Proper and complete accounting for loss of household services is required in the analysis and quantification of economic damages in personal injury and wrongful death litigation. Practice to date by most damages experts (DEs) addresses only a fraction of potential loss in many cases. Omission of mostly passive services from the accounting for lost services is the problem. The result is often a 60-70% understatement of actual total losses. The problem arises from institutional and loss analysts’ singular focus upon services which are actively performed. This paper proposes including passive care in the definition of lost services and provides a framework within which to measure that element of loss.

TEA.14.5Learned Hand’s False Efficiency.  Michael J. O’Hara.    Judge Learned Hand famously opined a metric for efficient liability. His calculus of negligence asserts that efficiency requires liability if B < PL. From Judge Hand’s appellate court perspective the law held the defendant liable for breach of contract when the defendant’s burden of protective costs (B) is less than (P) the probability of the plaintiff’s injuries occurring times (L) the magnitude of plaintiff’s injuries. Others have transformed this into an equation for tort negligence. This manuscript will explore two issues. The first issue is a critique of under specification (i.e., missing variables) in Judge Hand’s formulation. The second issue is a tempting fallacy artfully used by those seeking to truncate liability in tort reform arguments.