Although some appraisers are categorically opposed to calculation engagements, it is not unusual for courts to want a back-of-the-envelope calculation, a veteran BV expert says.
David Shindel (ShindelRock), a credentialed valuator and master analyst in financial forensics, recalls recent litigation involving a Las Vegas adult entertainment business. A number of employees (defendants) carried out a scheme to overcharge customers’ credit cards, which led to the business’s being shut down and having to pay chargebacks to the customers’ credit cards, besides incurring professional fees to investigate the fraud and negotiate an agreement with law enforcement.
The company sued the defendants for loss of business value. The shareholders retained Shindel, who has extensive experience valuing adult cabarets and published the only peer-reviewed article on related zoning issues, to develop a damages calculation. The defendants never appeared in court and did not offer opposing expert testimony.
The court expressly asked Shindel to keep his damages assessment short and simple. Shindel presented a before-and-after calculation, taking the average gross receipts for the prior three years and multiplying the number by 85% of gross sales based on industry standards. The court accepted the testimony, which Shindel was able to give via telephone. The report to the court was a page and a half long with two attachments. “The key element was that I had to be credible with the court,” Shindel says.
A second case, in which the court sealed the record, also involved an adult cabaret. The business was destroyed based on faulty repair work by a utility company. The latter was willing to pay for damages to the real estate but not the business as a going concern and goodwill, arguing, among other things, the business had not been profitable in prior years. The business retained Shindel, who, through an analysis of information specific to the business, the site on which it was located, and the industry, was able to present the court with a calculation of expected profits as of the date of the defendant’s wrongful conduct. In this case, too, the court asked for a back-of-the-envelope calculation. It accepted Shindel’s damages determination.
Shindel says throughout his career serving as a testifying expert he has encountered judges who wanted him to keep his value or damages calculations brief. “Many times, courts want something simple,” he notes.