Economic Analysis at Willamette Management Associates

ECONOMIC DAMAGES/LOST PROFITS ISSUES

Lost profits
Our client, the plaintiff in the litigation, designed and manufactured specialized food preparation equipment for the food service industry. The client had contracts to provide specially designed toaster ovens for several national fast food chains. The manufacturer of the heating elements, the defendant, provided defective products. The components of our economic damages analysis included: lost historical and prospective profits, lost market share, and damage to corporate reputation and goodwill. We quantified the plaintiff's economic damages, and we provided expert testimony to support the claimed economic damages.

Breach of contract
We were retained by counsel for the defendant, national company that sells doughnuts and related food items through both company-owned and franchised stores, in a breach of contract dispute. The plaintiffs claimed economic damages related to their ownership interest in a group of franchised stores that were being closed by the company. Our analysts provided expert testimony at the American Arbitration Association (AAA). The AAA arbitrators found our economic damages estimate to be more credible than the economic damages estimate offered by the plaintiffs' expert witness.

Our client was a partnership that owned a hotel near the Minneapolis airport. The general partner constructed and contributed the hotel to the partnership. A limited partner contributed the adjoining undeveloped property. That property was improved and used as the principal guest parking lot for the hotel. The limited partner withdrew from the partnership, causing the distribution of the parking property from the partnership to the partner. The partnership sued the limited partner for breach of contract and other claims. We quantified the economic damages to the hotel business enterprise related to the loss of an adequate parking facility.

A group of primary care physicians split off from the Wichita Clinic, a very large multi-specialty physician practice. The primary care physicians were immediately hired by a local for-profit hospital corporation. Wichita Clinic, our client, alleged that these physicians violated various employment, noncompete, and shareholder agreements. Our analysts qualified the economic damages related to the departing physicians' wrongful actions. And, our analysts provided expert testimony in support of our economic damages analysis.

Acquisition fraud and misrepresentation
A major Japanese financial institution, our client, sold its domestic commercial leasing company subsidiary to a New-York-City-based financial services company. About a year after the acquisition, the buyer, the plaintiff in the litigation, claimed fraud and financial statement misrepresentation with regard to the target company. The principal issue in the dispute was: what was the effect on the target company acquisition value due to the alleged fraud and misrepresentation. We quantified what the most likely acquisition price would have been if the alleged misrepresentations were known to the buyer. And, we provided expert testimony in support of our damages analysis.

Eminent domain
State and local departments of transportation are often involved in highway development projects that disrupt roadside businesses. These development projects often involve the state or local government exercising its legal right of eminent domain. Restaurant franchisees, for example, have to deal with this eminent domain issue from time to time. Our analysts are frequently called on to determine the amount of damages due to the owners of the condemned businesses. Our analysts have performed eminent domain valuations in many different industries. Our analysts have particular expertise with regard to restaurants, hospitality, and retail properties. We are often called on to provide expert witness testimony in such eminent domain valuation cases.

Our client owned a water distribution company in suburban Maryland. The local municipality exercised its legal right of eminent domain. The investor-owned utility (IOU) and the condemning municipality could not agree on a negotiated fair market value of the assets subject to the taking. The matter was decided by a jury trial. Our analysts testified that the municipality's appraiser did not consider the value of the water system's intangible assets, including computer software, books and records, customer relationships, system maps and engineering drawings, and licenses and permits. The jury agreed with our analyst's expert testimony and awarded to the IOU the value of the water system intangible assets.

Jamaica Water Supply Company was the last privately owned water distribution company in New York City. The New York City government decided to exercise its legal right of eminent domain to condemn the IOU water system assets. The city's appraiser valued the water system real estate and tangible property but ignored the water system intangible assets. Our analysts valued the water system customer relationships, water testing and other required documentation, computer software, water diversion rights, engineering drawings and system maps, licenses and permits, and assembled workforce. Our analysts testified in state court, and the court awarded to the condemner the value of water system intangible assets.

Prior to the Islamic Revolution, Foremost McKesson owned the largest commercial dairy company in Iran. Along with all other American-owned companies, the Pak Dairy Company was nationalized by the Iranian government in 1979. Our analysts estimated the fair market value of the Pak Dairy business enterprise that was subject to international expropriation. On behalf of the plaintiff, Foremost McKesson, our analysts testified in U.S. District Court in support of our valuation analysis and fair market value conclusion.

ECONOMIC ANALYSIS/FORENSIC ECONOMIC ISSUES

Reasonableness of executive compensation studies
Our analysts routinely perform reasonableness of executive compensation studies, primarily related to the compensation of employee/shareholders of closely held C corporations. These analyses often relate to disputes between the Internal Revenue Service and the company over the tax deduction of the employee/shareholder compensation expense. The reasonableness of employee/shareholder compensation can also be an issue for S corporations. The Service may claim that the S corporation pays its employee/shareholders an unreasonably low level of compensation. Our reasonableness of executive compensation analyses typically include an industry salary survey analysis, a proxy statement analysis, a financial ratio analysis, and a fair return to shareholder investment analysis.

Not-for-profit entity employee compensation analysis
Our analysts have performed reasonableness of compensation analyses for non-for-profit entities (1) to assist our clients in setting reasonable employee compensation levels and (2) to examine the reasonableness of past compensation when the Internal Revenue Service raises private inurement issues. Our compensation analyses typically include an industry salary survey analysis, an analysis of compensation data from public filings (SEC proxy statements or IRS Forms 990), and a financial ratio analysis. Our analysts have performed these analyses for a wide range of not-for-profit entity employees, including executives, administrators, physicians, and other professionals.

CLIENT SERVICES

Economic Analysis