June 18, 2013 Articles

How a Damages Expert Can Stumble over the Balance Sheet

Keep track of both sides of the balance sheet when calculating damages.

By Alexander "Sasha" Aganin

Readers of this newsletter have probably seen many cases in which a trustee or creditor of a bankrupt entity alleges that managers’ or third parties’ actions caused company’s losses during the period leading up to or following the bankruptcy filing. Superficial damages analyses confuse financing transactions with losses, instead of quantifying economic losses and analyzing their causes.

When calculating damages, an expert needs to compare economic outcomes in the actual world with a hypothetical situation that differs in only one respect: The challenged conduct is replaced by alternative actions by the defendants. See Mark A. Allen, Robert E. Hall & Victoria A. Lazear, “Reference Guide on Estimation of Economic Damages,” in Reference Manual on Scientific Evidence (3d ed. 2011). This comparison aims to charge the defendants only with losses caused by their alleged misconduct. (The law imposes a constraint that the chain of causation cannot be so long that the impact of alleged misconduct is too remote from the defendants’ actions.)

Premium Content For:
  • Litigation Section
Join - Now