The “laborious and costly process” of permitting valuation experts to testify in bankruptcy cases—including the time and expense of discovery, disclosure, depositions, and pretrial Daubert motions—“contributes nothing to the resolution of the disputes,” says a new article, “Campbell, Iridium, and the Future of Valuation Litigation,” by Michael W. Schwartz and David C. Bryan in The Business Lawyer, August 2012 (subscription required).
To support their premise, the authors examine two “landmark federal valuation decisions”: VFB LLC v. Campbell Soup Co. (3rd Cir. 2007) and In re Iridium Operating LLC (Bankr. S.D.N.Y.)(both available at BVLaw). Both cases held “that market evidence—rather than the testimony of paid litigation experts—should be relied on to value corporations for purposes of litigation.” Moreover:
While a number of decisions have followed Campbell and Iridium, their full potential to make business valuation litigation less costly and less susceptible to hindsight bias has yet to be realized. Courts can and should take advantage of the full panoply of types of market evidence relied on by [the court] in Campbell, and ordinarily equally available to the finder of fact in other business valuation disputes—even in cases [in which], unlike Campbell and Iridium, the company to be valued has no publicly traded securities.
Such market evidence, even for non-publicly-traded companies, would include the opinions of lenders, creditors, investors, and other market participants who act just before or during a subject transaction as well as the “contemporaneous views of expert advisors expressed at or near the valuation date.” In fact, courts should not even permit the parties to present “paid” valuation experts without first establishing, in pretrial motions, that any “non-expert contemporaneous market evidence is insufficient to permit the finder of fact to make a reasoned determination of value.”
Is that just a Daubert motion by another name? If you have an opportunity to read the article, please email your opinions to the editor.
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