The case concerned a contract to develop natural gas reserves in Bulgaria. The reserves were still in the ground when the defendant breached the contract, so their value could range from as low as $32 million to well over $100 million for a 100% interest, according to the plaintiff’s valuation expert. Or, based on a “due diligence” report, prepared by the defendant’s own industry expert, the value of the gas in the ground could be worth as much as $31.5 billion; even a 1% interest could return about $315 million.
When asked to derive “the most likely figure” for the plaintiff’s 38% interest in the project, the valuation expert gave an adept answer. Rather than specify a number, he indicated that the jury could consider “all of the evidence” and come to its own conclusion of FMV. Indeed, the jury returned a verdict of $66.5 million—or more than twice the value of the expert’s “cash flow” model, and far more than the $8.5 million that the defendant had agreed to pay for a 10% interest. The trial court reduced the award to $31 million, but on review, the appellate court reinstated the entire amount, finding it supported by sufficient evidence. In particular, the court commended the plaintiff’s valuation expert for “appropriately deferring to the jury, in its role as fact finder, to make its own assessment of fair market value.” Read the complete digest of Carlton Energy Group, LLC v. Phillips, 2012 Tex. App. LEXIS 1299 (Feb. 14, 2012) in the upcoming Business Valuation Update; the court’s opinion will be posted soon at BVLaw.