“In lost profits cases, dealer termination cases come up quite often,” Robert Lloyd (University of Tennessee College of Law) told listeners last Friday during the BVR webinar Discounting Lost Profits: Case Law & Methods – A Legal Perspective. One case in particular, Diesel Machinery, Inc. v. B.R. Lee Industries, Inc., 418 F.3d 820 (8th Cir. 2005) is a good example. The case’s particulars include:
- A road-building equipment dealer sued a manufacturer that had wrongfully termi-nated its dealership agreement. The defendant’s damages expert, a credentialed and experienced analyst, used a discount rate of 17.5% in calculating the present value of the plaintiff’s damages
- “South Dakota law required a risk-free discount rate.”
- “There is a difference between discounting to present value damages awarded in a lawsuit, and discounting to present value the value of a business based on a future stream of lost profits.”
“The Court struck the expert’s testimony,” explained Lloyd, “because the law required risk free discount rate.” Co-presenter Mike Crain (Financial Valuation Group) adds “the court made a finding that it should be risk free rate. As the expert we should be asking an attorney whether the law emphasizes something specific or if it is left up to the expert. Talk to the lawyer and if the lawyer isn’t sophisticated you may have to explain that they should look at the question as to whether the cases of personal injury and wrongful death should apply in business cases in that jurisdiction. If you are in South Dakota you do want to use a risk free rate until that case is reversed.
To purchase the webinar transcript click here.
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