Numbers may very well be the single most difficult thing to be presented in a courtroom setting. Numbers are tough on stenographers. Numbers make it difficult for the trier of fact to watch the witness while taking notes and trying to understand what the numbers mean. Numbers work better on paper, but the rules of evidence occupied charts, graphs, and handouts in all sorts of sustained objections.
So what are you going to do when you are fighting a classic business valuation case and your expert witness comes up with one number and the opposing expert witness comes up with another number? (Hint: the answer is not split the difference.)
Yes, in the battle of dueling expert accountants, CPAs, compliance officers, auditors, actuaries, and other numbers-loving disciplines, you, the trial lawyer, must sit down and learn the math. The most important thing you can do in these types of cases is to budget for classroom time with your own expert to learn not only his theory of the bottom line, but also the opposition’s theory of the bottom line.
In the scenario of a dispute over business valuation, it’s important to understand that there are different formulas that can and will be used. It’s fair to assume that the expert is going to select the method that best results in the higher or lower value that one party is after and that the other expert will do the opposite.
Each formula is going to use different variables, and you are going to have to learn the prioritized ranking of each variable by greatest impact upon the final figure. It’s not always true that you simply start at the beginning of the equation and all variables are equally important. What you and the expert witness are after is both an understanding of and an ability to present to the triers of fact which variable(s) are the “Aha!” variables.
The same is true even when two expert witnesses agree on the formula for the valuation. Let’s say that both expert witnesses agree that the discounted future earnings approach should be used, that both use the historic reported company earnings, but then reach a different conclusion. You and your expert witness need to be the partnership where both fingers simultaneously point to the discount rate, so that you can get ready to battle out the economic and business indicators that make your discount rate the true reflection of volatility.
When you understand the numbers and the theory behind the numbers, you and your expert witness become the duo that turns the figures into the most interesting narrative since John Grisham published his first lawyer novel. And, when you consider that business valuations can swing into differences worth millions of dollars, you shouldn’t be reading this – you should be sharpening your pencil and calling your expert.
By: Paloma A. Capanna, Attorney