Expert does not need to know the law before taking a case

BVWireIssue #118-2
July 18, 2012

After purchasing a company for $45 million—and promising nearly half that amount in newly issued shares—the acquirer failed to register the stock with the SEC. A class of shareholders filed suit, claiming $14.5 million in damages, as calculated by their expert. The defendant first filed a motion to dismiss, arguing that the expert failed to apply the controlling law on damages. After losing that motion, it challenged the expert under Daubert. Since the expert hadn’t even heard of the controlling case before taking on this engagement, the defendant said he could not be considered an “expert on damages.”

As in its order on the motion to dismiss, the federal district court confirmed that the proper measure of damages for a breach of promise to register stock is controlled by Duncan v. TheraTX Inc., 775 A.2d 1019 (Del. 2001). Not only did the plaintiff’s expert correctly apply the law in this case, but “this court does not expect scientific, technical, or financial experts to know of particular cases that recite methods by which damages can be calculated, since the law is not their area of expertise.” Rather, “it is the quantification of inputs into the Duncan formula that fall into [the expert’s] expertise,” the court emphasized, in dismissing the Daubert motion. Indeed, the expert’s selection of inputs regarding the loss period and the pricing of shares, among others, was a matter for the trier of fact to decide.

The digest of the court’s first decision in Stuckey v Online Resources Corp. appeared in the February 2012 issue of Business Valuation Update; the court’s more recent Daubert ruling will be digested in the August issue. Both decisions are posted at BVLaw, as is the 2001 Duncan decision and its digest.

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