Last week’s BVWire covered a recent case that involved the use of the yardstick method in the context of lost profits damages. The issue was how closely the subject business must resemble a comparable firm to produce a yardstick analysis that meets the Daubert requirements. A federal court’s ruling suggests “not that closely.”
Key point: “If there is one takeaway we have from the many cases involving Daubert and its progeny, it’s that for every case you can find stating one proposition, you'll find another one stating the opposite,” says Nancy Fannon (Harrison, Meyers & Pia). Fannon, the editor of The Comprehensive Guide to Lost Profits and Other Commercial Damages, says that this case shouldn’t give experts the impression that the yardsticks they use don't have to closely match the subject business. “The courts use a flexible bar, to be sure, but that flexibility is borne from the legal aspects of the case. There are many legal aspects that could have a bearing on whether our testimony is allowed or the extent to which our analysis is ultimately deemed to be sufficiently reliable. Our analysis should always be made using the best available proof,” she stresses.
Sylvia Golden, the editor of BVLaw, agrees and comments: “Although the defendant made a strong argument against admitting the yardstick analysis, the court was surprisingly lenient in terms of admitting the testimony under Daubert. But don’t count on other courts showing the same degree of liberality.” An extended discussion of the case, Washington v. Kellwood Co., 2015 U.S. Dist. LEXIS 63457 (April 21, 2015), is in the August issue of Business Valuation Update. The court opinion is available at BVLaw.
For more information, Fannon’s book includes extensive material on Daubert issues in the context of lost profits and commercial damages.