Michael Haugen 2015-04-30 05:21:34
Capitalizing on Synergies With Your Financial Damages Expert With March Madness recently in the rearview mirror it seems timely to reflect on the role of collaboration between counsel and financial damages experts. Just as much as a good head coach leads a team to victory, counsel wears similar shoes. Orchestrating a favorable outcome requires both coaches and counsel to coordinate strategy and players within the confines of applicable rules and in the context of each unique scenario. Coaches don't put a point guard in the game and then passively sit on the sideline waiting to see how things go, nor does counsel. Counsel and financial damages experts should constantly communicate regarding case strategy and the methodology that will be used to analyze damages. At the start of an assignment, the expert will often consult with counsel, brainstorming different measurement approaches that are potentially applicable to a particular fact pattern. Such discussions are an opportune time for counsel to leverage their expert's knowledge, skills and training to better understand the potential financial damages of a case. But this interaction should not be one-sided. Although financial damages experts bring their expertise to a case, they do not complete an assignment in isolation. Case law may dictate the methodology applicable to measuring a particular type of financial damages, and it can vary by court (federal versus state) and location. For this reason, experts should seek counsel’s guidance on case law that might apply to a particular financial damages analysis or component thereof. Take a lost profits case for example, an instance where an allegation exists that due to a particular circumstance a party sustained economic damages. The starting point to the calculation is to measure lost revenue. The actual damages, however, are measured net of foregone expenses relative to the lost revenue and/or due to the circumstance from which the alleged financial damages stem. As amounts incurred in direct relation to fulfilling a sale, there is little to no dispute over directly variable expenses being an appropriate offset to lost revenue in order to measure lost profits. However, in some instances, courts diverge on the appropriateness of also deducting a portion of incremental and/or fixed costs from lost revenue in order to measure lost profits. For example, in Florida, the case of RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. involves a scenario wherein a small portion of RKR Motors’ total revenue was alleged lost. According to the American Institute of Certified Public Accountants, Forensic & Valuation Services Digest, October 2014, the court ultimately found it appropriate that a portion of fixed expenses be allocated to the lost revenue (i.e., as a deduction) in order to measure lost profits. The premise of that conclusion entails an assertion that without accounting for an allocation of fixed expenses, the lost profits award would be overstated. Specifically, that expense deductions may be appropriate to a lost profits claim even if the nature of the expense itself is not demonstrated as an incremental amount that would have been incurred to support or realize the lost revenue. In contrast, in the case of White v. Rimmer & Garrett, Inc., the Supreme Court of Louisiana ultimately found that only the incremental expenses that would have been incurred in order to realize the lost revenue are deductible to measure lost profits. Id. Unlike the RKR Motors case, no allocation of fixed expenses was credited against lost revenue to measure lost profits. These two cases are merely an example of the contrast that can be found within the courts regarding methodologies to measure economic damages. Due to such divergence, and although financial experts may present a recommendation on how a particular financial loss should be measured, counsel and experts should work hand-in-hand to identify if any particular case law may apply to a particular case. It may ultimately be decided that the expert has a different opinion from prior case law, in which case he/she should work with counsel in deciding how to proceed. After careful review, it may also be determined that a prior ruling doesn’t apply to a current case due to the unique facts and circumstances of the current case. But by vetting historical rulings regarding financial damages measurement methodologies with your expert, counsel stands to benefit not only by fine-tuning the financial expert’s assignment but also by ensuring the ultimate calculation or opinion of the expert is consistent with the overall case strategy. Michael Haugen is a certified public accountant, certified in financial forensics and a certified fraud examiner. As a manager at Epps Forensic Consulting he has assisted legal counsel, insurance carriers, law enforcement and business owners in the successful resolution of hundreds of financial damages claims involving hundreds of millions of dollars. As an industry leader he has presented continuing education seminars across the country and is focused on continuous professional development and building sustainable relationships. For more information, visit www.EppsForensics.com.
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