“The most common reason that civil cases fail is not the failure to establish liability, but the failure to think about a damages case,” said the Hon. G. Murray Snow, who sits on the U.S. District Court in Arizona. Speaking on a panel at the ASA’s recent BV conference in Phoenix, which aslo included a state court judge and a local attorney, Judge Snow used two recent cases to illustrate his point.
In the first, one of the two major competitors in an industry accused its opponent of stealing trade secrets. The plaintiff sued “for enough money to put the defendant out of business,” Judge Snow said. The lawyers spent “millions” preparing the case for a three-week jury trial and “endless” testimony, none of which included any damages evidence by an expert to explain “what the trade secret loss cost.” Instead, the plaintiff presented only corporate insiders and documents to estimate damages. During deliberations, the jury asked, “If we determine that the defendant did steal the trade secrets but we can’t determine [the plaintiff] was damaged, what do we do?” Within minutes of receiving an answer, the judge said, the jury returned a verdict for the defendant.
The second case concerned a law firm that “blew up,” with several of the partners suing the main principal for breach of fiduciary duty. After the judge issued sanctions preventing the defendant from presenting any evidence in the case—limiting him only to cross-examination—the plaintiffs were “ecstatic.” But then they did not present a single witness—including any business appraiser—to calculate the value of the law firm. “The [plaintiff] attorneys told me much later that they couldn’t afford a damages expert,” Judge Snow said, but that could have been a post-hoc rationale for losing a case they had all but won.
We’ll have more from the ASA legal panel—including practice tips for Daubert preparation and how to handle draft reports under the recently amended federal rules—in the next Business Valuation Update.
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