The job of a valuation expert is to provide his or her independent opinion as to the value of the business interest involved in the particular litigation or to independently quantify economic damages. If both experts are unbiased, why are the values sometimes so far apart between the experts for the two sides? And why do the values always seem to favor the side being represented by the valuation expert?
For example, in Apple Inc. v. Motorola (1-11-cv-08540, N.D. IL, May 22, 2012), Judge Posner noted that the differences between the experts' conclusions of damages was a "warning sign" for future cases. "Either one of the experts is way off base, or the estimation of a reasonable royalty is guesswork remote from the application of expert knowledge," Judge Posner stated.
In an Indiana divorce case, the judge excluded the testimony of the husband-physician's expert as to the value of his interest in a radiology practice after the expert valued the interest at $100, while disregarding other evidence of the true fair market value of the interest.
Judges are becoming more cognizant of these wide valuation variances and are less patient with the experts. Daubert is becoming an effective enforcement tool for judges. If the opposing attorney initiates a Daubert challenge and the expert loses, his or her conclusion may be excluded from evidence.
To survive a Daubert challenge, a valuation report must meet four requirements:
(Daubert v. Merrell Dow Pharmaceuticals, Inc. 113 S.Ct. 2786, 1993)
It's also important for the attorney to give the expert all of the relevant data — as well as the space and time to come up with an unbiased value conclusion based on the facts at hand and the expert's professional judgment. During the valuation process, attorneys shouldn't attempt to sway the expert or spin information in a way that favors a client's financial interests.
Then the attorney (or an involved staff person) can cold review a draft copy of the valuation report, acting as "devil's advocate." It's important that the trier of fact be able to determine from the report itself how the valuation expert arrived at his or her valuation conclusion and why that value is supportable and reasonable.
The attorney should also ask the expert to explain why the conclusion isn't biased in favor of his or her client. This is especially important in a case where the opposing expert might have a widely divergent view of the value from your expert's view.
The expert can also assist the attorney in putting together an analysis the experts' valuation discrepancies and the reasons for the differences, including the support for each difference. This analysis can be used to outline the expert's testimony, the attorney can use it to cross-examine the opposing expert, or it can be used as a part of the attorney's post-trial brief.
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