In a New York case, a shareholder accused his partner of freezing him out, and he sued for damages. The company, Trap Karaoke, offers a fan-centered concert experience where fledgling singers can perform with surprise celebrity guests in front of a live audience.
Comp analysis: To measure damages, the plaintiff shareholder’s expert did a DCF for the relevant damages period. The company did not have projections, so the expert used historical data from two comparable companies to project growth in the subject company’s revenue. The expert was able to get data and metrics directly from the founders of the two comparables in order to do his estimated projections, which he combined with the subject company’s expense and other financial data to do the DCF. In doing his analysis, he also used testimony from the defendant partner, who launched a Daubert challenge, claiming, among other things, that the expert cherry-picked the comparable companies (he did not challenge the DCF methodology).
The court said that “any selection of comparable companies is inherently the product of expert judgment,” and the record did not indicate that the expert’s judgment was biased or otherwise flawed, citing a 2022 New York case, Manbro Energy Corp. v. Chatterjee Advisors, LLC. The expert was allowed to testify, and any challenges to the expert’s work can be made at trial.
The case is Yador v. Mowatt, 2024 U.S. Dist. LEXIS 163727, and a case digest and full opinion are available on the BVLaw platform.
Extra: The BVResearch Pro platform has several resources on the cherry-picking problem, including a 2021 article by Richard Claywell, “Eliminating Outliers in Financial Data Without Cherry-Picking.”