Litigation Services Handbook: The Role of the Financial Expert Fourth Edition

LITIGATION SERVICES HANDBOOK, FOURTH EDITION......Page 3
CONTENTS......Page 5
PREFACE......Page 9
ABOUT THE EDITORS......Page 11
ABOUT THE CONTRIBUTORS......Page 14
PART I: THE LITIGATION ENVIRONMENT......Page 29
CONTENTS......Page 31
1.1 INTRODUCTION......Page 32
1.2 THE CIVIL COURT SYSTEM......Page 35
1.3 THE LEGAL PROCESS......Page 40
1.4 TYPICAL ROLES OF THE FINANCIAL EXPERT......Page 48
1.5 FINANCIAL EXPERT SERVICES IN THE LITIGATION ENVIRONMENT......Page 49
1.6 OPINION TESTIMONY......Page 51
1.7 SKILLS COMMONLY REQUIRED OF FINANCIAL EXPERTS......Page 52
1.8 FEE ARRANGEMENTS AND ENGAGEMENT LETTERS......Page 53
1.9 WORKPAPERS......Page 54
1.10 GUIDELINES FOR A FINANCIAL EXPERT......Page 55
1.11 PROFESSIONAL STANDARDS AND MALPRACTICE CONCERNS......Page 58
1.12 SPECIAL ISSUES FOR CPAs......Page 59
NOTES......Page 60
2.1 INTRODUCTION......Page 63
2.2 FUNDAMENTAL CAUSATION PRINCIPLES......Page 64
2.3 EXPERT TESTIMONY ON CAUSATION ISSUES......Page 72
NOTES......Page 76
3.1 INTRODUCTION......Page 85
3.2 PARTICULAR STRENGTHS OF ECONOMISTS......Page 86
3.3 PARTICULAR STRENGTHS OF ACCOUNTANTS......Page 88
3.4 APPLICATIONS OF ECONOMICS IN LITIGATION......Page 92
NOTES......Page 102
BIBLIOGRAPHY......Page 104
4.1 INTRODUCTION......Page 107
4.2 FORMS OF ALTERNATIVE DISPUTE RESOLUTION......Page 109
4.3 DOMESTIC ADR......Page 113
4.4 INTERNATIONAL ARBITRATION......Page 115
NOTES......Page 118
BIBLIOGRAPHY AND SUGGESTED SOURCES......Page 119
PART II: DAMAGES TECHNIQUES......Page 121
CONTENTS......Page 123
5.2 ACCOUNTING DATA: USES AND LIMITATIONS......Page 124
5.3 SIMPLE COST BEHAVIOR: VARIABLE COST ASSOCIATED WITH A SINGLE COST DRIVER......Page 127
5.4 MORE COMPLEX COST BEHAVIOR: SEVERAL COST DRIVERS......Page 128
5.5 STATISTICAL COST ESTIMATION USING REGRESSION ANALYSIS......Page 130
5.6 ISSUES ARISING IN REGRESSION ANALYSIS OF ACCOUNTING DATA......Page 136
5.7 DETECTING FLAWS IN A REGRESSION ANALYSIS......Page 141
5.8 OTHER METHODS FOR ESTIMATING INCREMENTAL COSTS......Page 143
5.9 CONCLUSION......Page 144
NOTES......Page 145
CONTENTS......Page 147
6.2 THE ROLE OF ECONOMETRICS IN LITIGATION......Page 148
6.3 A REGRESSION MODEL......Page 149
6.4 VIOLATION OF ASSUMPTIONS......Page 150
6.5 TYPES OF SPECIFICATION ERRORS......Page 159
6.6 CHOICE OF FUNCTIONAL FORM......Page 161
6.7 SENSITIVITY TESTING OF ESTIMATED RESULTS......Page 162
6.8 ATTRIBUTES OF A GOOD MODEL......Page 166
6.9 CHOOSING THE CORRECT SIGNIFICANCE LEVEL......Page 167
6.10 STATISTICAL VERSUS PRACTICAL SIGNIFICANCE......Page 168
6.11 R-SQUARED (R2)......Page 169
NOTES......Page 170
7.1 INTRODUCTION......Page 199
7.2 OPPORTUNITY COST OF CAPITAL......Page 200
7.3 THEORETICAL MODELS OF THE COST OF CAPITAL......Page 203
7.4 ESTIMATING THE COST OF CAPITAL......Page 208
NOTES......Page 216
BIBLIOGRAPHY......Page 218
8.1 INTRODUCTION......Page 221
8.2 EXPECTANCY VERSUS OUTCOME DAMAGES......Page 222
8.3 APPLICATION OF THE EX ANTE APPROACH IN LITIGATION......Page 223
8.4 APPLICATION OF THE EX POST APPROACH IN LITIGATION......Page 230
8.5 HYBRID APPROACH......Page 237
8.6 THE BOOK OF WISDOM......Page 238
8.7 THE WRONGDOER’S RULE......Page 240
LIST OF CASES......Page 242
BIBLIOGRAPHY AND SUGGESTED REFERENCES......Page 243
9.1 INTRODUCTION......Page 245
9.3 WHICH INTEREST RATE? THE DEFENDANT’S COST OF UNSECURED BORROWING......Page 247
9.4 AWARDING PREJUDGMENT INTEREST AT A FLOATING INTEREST RATE......Page 252
9.5 ESTIMATING THE DEFENDANT’S UNSECURED FLOATING BORROWING RATE......Page 253
9.6 COMPUTING THE MULTIPLIER......Page 254
9.7 OTHER ISSUES IN THE CALCULATION OF PREJUDGMENT INTEREST......Page 255
9.8 CLOSE CORPORATIONS AND INDIVIDUAL PLAINTIFFS......Page 258
9.9 CONCLUSION......Page 259
NOTES......Page 260
LIST OF CASES......Page 261
BIBLIOGRAPHY......Page 262
10.1 INTRODUCTION......Page 263
10.2 FLAW OF AVERAGES: DEFINITION......Page 264
10.3 FLAWED JUDICIAL DECISIONS......Page 268
10.4 FLAWED ANALYSIS OF THE VALUE OF LITIGATION......Page 269
10.5 DISCRETE EVENTS......Page 270
10.7 PROBABILITY MANAGEMENT......Page 272
NOTES......Page 274
11.1 INTRODUCTION......Page 277
11.2 THE LEGAL FRAMEWORK FOR ESTABLISHING LOST PROFITS FOR A NEW BUSINESS......Page 278
11.4 THE ANALYTICAL ISSUES FOR MEASURING ECONOMIC LOSSES......Page 288
11.5 APPLYING THE ANALYTICAL FRAMEWORK......Page 292
NOTES......Page 299
12.1 INTRODUCTION......Page 303
12.3 ADJUSTMENT PROCESS......Page 304
12.4 TENSION BETWEEN CLAIMS ADJUSTER AND POLICY UNDERWRITER......Page 305
12.5 PERILS, NUMBER OF EVENTS, AND DENIAL OF ACCESS......Page 306
12.7 SEASONALITY AND LOSS PERIOD......Page 307
12.9 ACTUAL LOSS SUSTAINED......Page 308
12.11 NONCONTINUING EXPENSES......Page 310
12.13 EXPEDITING AND EXTRA EXPENSES......Page 311
12.14 INVENTORY (CONTENTS) CLAIMS......Page 312
12.16 REQUESTS FOR PARTIAL PAYMENT......Page 313
12.18 PREPARING A PERSUASIVE CLAIM......Page 314
12.19 NEGOTIATING A FAVORABLE SETTLEMENT......Page 315
NOTES......Page 316
LIST OF CASES......Page 317
CONTENTS......Page 319
13.1 BUSINESS VALUATION IN LITIGATION MATTERS......Page 320
13.2 UNDERSTANDING THE CONCEPT OF VALUE......Page 322
13.3 VALUATION DATE......Page 324
13.4 VALUATION MODELS......Page 325
13.5 OVERVIEW OF VALUATION APPROACHES......Page 326
13.6 INCOME APPROACH......Page 327
13.7 MARKET APPROACH......Page 338
13.8 ASSET-BASED APPROACH......Page 340
13.9 VALUATION ADJUSTMENTS......Page 341
13.11 SPECIALTY CERTIFICATIONS IN VALUATION......Page 343
CHAPTER 13 APPENDIX A: INTERNATIONAL GLOSSARY OF BUSINESS VALUATION TERMS......Page 344
BACKGROUND......Page 351
APV METHODOLOGY......Page 352
WHY LITIGATION PRACTITIONERS DO NOT USE APV MORE FREQUENTLY......Page 353
NOTES......Page 354
BIBLIOGRAPHY AND SUGGESTED REFERENCES......Page 356
ADDITIONAL RECOMMENDED READING......Page 357
14.1 INTRODUCTION......Page 359
14.2 BASIC DAMAGES MODEL......Page 360
14.3 INFORMATION NEEDED FOR ANALYSIS......Page 367
14.4 OTHER CONSIDERATIONS......Page 369
NOTES......Page 372
LIST OF CASES......Page 374
BIBLIOGRAPHY......Page 375
15.1 INTRODUCTION......Page 377
15.2 BACKGROUND......Page 378
15.3 THE EXPERT’S ROLE......Page 387
NOTES......Page 392
LIST OF CASES......Page 394
16.1 INTRODUCTION......Page 397
16.2 ORIGIN OF THE CLAIM TEST......Page 398
16.3 TYPES OF DISPUTES......Page 399
16.5 STRUCTURED SETTLEMENTS......Page 404
16.6 TAX TREATMENT OF PAYMENTS BY PAYOR......Page 405
16.7 DEDUCTION OF LEGAL FEES......Page 407
NOTES......Page 408
BIBLIOGRAPHY......Page 410
PART III: LITIGATION TOOLS......Page 411
17.1 INTRODUCTION......Page 413
17.2 THE CHANGING LANDSCAPE......Page 416
17.3 MEET AND CONFER CONSIDERATIONS......Page 422
17.4 ELECTRONIC COMMUNICATIONS: USE OF E-MAIL IN LITIGATION TODAY......Page 423
17.5 STRUCTURED DATA: USE OF TRANSACTIONAL DATA IN LITIGATION TODAY......Page 431
17.6 INFORMATION ARCHIVAL......Page 440
NOTES......Page 441
PART IV: CIVIL LITIGATION......Page 443
18.1 INTRODUCTION......Page 445
18.2 FEDERAL SECURITIES ACTS......Page 446
18.3 ALTERNATIVE DAMAGES MEASURES......Page 449
18.4 THE EXPERT’S ROLE......Page 452
CHAPTER 18 APPENDIX A: STATISTICAL APPROACH TO THE EVENT STUDY......Page 461
INTERPRETING THE MODEL......Page 463
CHAPTER 18 APPENDIX B: TRADING MODEL DISCUSSION......Page 465
NOTES......Page 466
BIBLIOGRAPHY......Page 469
19.1 INTRODUCTION......Page 471
19.2 TYPES OF ACCOUNTING SERVICES......Page 472
19.3 AN OVERVIEW OF THE LAW......Page 473
19.4 THE EVOLVING TREND OF ACCOUNTANT LIABILITY......Page 476
19.5 THE PLAINTIFF’S STRATEGIES......Page 479
19.6 THE STRATEGIES OF THE DEFENDANT ACCOUNTANT......Page 482
19.7 THE ACCOUNTANT AS EXPERT......Page 488
NOTES......Page 490
CONTENTS......Page 493
20.2 MAIN FORMS OF NONPATENT INTELLECTUAL PROPERTY RIGHTS......Page 494
20.3 GENERAL DAMAGES MEASUREMENT ISSUES IN NONPATENT INTELLECTUAL PROPERTY CASES......Page 500
20.4 HOW NONPATENT INTELLECTUAL PROPERTY DAMAGES DIFFER FROM PATENT DAMAGES......Page 506
20.5 DAMAGES ISSUES SPECIFIC TO COPYRIGHT INFRINGEMENT......Page 509
20.6 DAMAGES ISSUES SPECIFIC TO TRADEMARK INFRINGEMENT AND FALSE ADVERTISING......Page 516
20.7 DAMAGES ISSUES SPECIFIC TO TRADE SECRETS......Page 523
NOTES......Page 534
LIST OF CASES......Page 541
BIBLIOGRAPHY......Page 544
CONTENTS......Page 547
21.2 CALCULATING PROFIT IN THE ENTERTAINMENT INDUSTRY......Page 548
21.3 TECHNOLOGY AND OTHER TRENDS AFFECTING ENTERTAINMENT IP VALUE......Page 569
21.4 TRENDS IN IP LAW IN ENTERTAINMENT......Page 575
21.5 CONCLUSION......Page 581
CHAPTER 21 APPENDIX A: INDUSTRY DATA SOURCES......Page 582
CHAPTER 21 APPENDIX B: GLOSSARY OF TERMS USED IN ENTERTAINMENT FINANCE......Page 584
NOTES......Page 586
CONTENTS......Page 591
22.1 INTRODUCTION......Page 592
22.3 PATENT DAMAGES......Page 593
22.5 LOST PROFIT DAMAGES......Page 596
22.6 REASONABLE ROYALTY......Page 605
22.7 ROYALTY BASE......Page 620
22.8 DUAL AWARDS......Page 621
22.10 DESIGN PATENTS......Page 622
22.11 INTEREST ON DAMAGES......Page 623
22.12 INJUNCTIVE RELIEF......Page 624
NOTES......Page 625
23.1 INTRODUCTION......Page 631
23.2 PURPOSE OF ESTABLISHING A LICENSE COMPLIANCE PROGRAM AND EXECUTING ROYALTY EXAMINATIONS......Page 632
23.3 EXECUTING A ROYALTY EXAMINATION......Page 634
23.4 THE SETTLEMENT PROCESS......Page 636
23.5 INDUSTRY-SPECIFIC COMPLEXITIES IN EXECUTING LICENSE EXAMINATIONS......Page 637
23.7 SUMMARY OF BEST PRACTICES FOR DEVELOPING A LICENSE COMPLIANCE PROGRAM......Page 639
23.8 CONCLUSION......Page 641
NOTES......Page 642
24.1 INTRODUCTION......Page 643
24.2 PREREQUISITES FOR ANTITRUST DAMAGES: CAUSATION, ANTITRUST INJURY, AND STANDING......Page 646
24.3 STANDARDS OF PROOF FOR ANTITRUST DAMAGES......Page 649
24.4 DISAGGREGATION OF DAMAGES......Page 651
24.5 CALCULATING ANTITRUST DAMAGES......Page 653
24.6 USE OF ECONOMETRICS TO ISOLATE THE EFFECTS OF ANTITRUST VIOLATIONS......Page 655
24.7 OTHER ISSUES THAT ARISE IN ANTITRUST DAMAGES CALCULATIONS......Page 657
24.8 AUTOMATIC TREBLING OF DAMAGES AND PREJUDGMENT INTEREST......Page 658
24.9 PREDATORY PRICING AND COST ESTIMATION......Page 659
24.10 SUMMARY......Page 661
NOTES......Page 662
LIST OF CASES......Page 665
BIBLIOGRAPHY AND OTHER SUGGESTED READING......Page 666
CONTENTS......Page 669
25.1 INTRODUCTION......Page 670
25.2 CONTRACT PROVISIONS WITH POTENTIAL ACCOUNTING, FINANCIAL REPORTING, AND PURCHASE PRICE SIGNIFICANCE......Page 671
25.3 COMMON DISPUTES ARISING FROM PROVISIONS......Page 674
25.4 ROLE OF ACCOUNTANTS......Page 683
25.5 CONCLUSION......Page 686
BIBLIOGRAPHY......Page 687
26.1 INTRODUCTION......Page 689
26.2 COST POOLS......Page 694
26.3 DAMAGES MODELS......Page 697
26.4 DELAY CLAIM CALCULATIONS......Page 707
26.5 CONCLUSION......Page 708
LIST OF CASES......Page 709
27.1 INTRODUCTION......Page 711
27.2 RESIDENTIAL VERSUS INCOME PROPERTY: GENERAL OBSERVATIONS......Page 712
27.3 STATISTICAL MEASURES OF DAMAGES FOR RESIDENTIAL PROPERTY......Page 714
27.4 NONSTATISTICAL MEASURES OF DAMAGES FOR RESIDENTIAL PROPERTY......Page 721
27.5 EVALUATING AND QUANTIFYING DAMAGES FOR INCOME PROPERTY......Page 725
27.6 RECENT FEDERAL REGULATORY DEVELOPMENTS......Page 731
NOTES......Page 732
CONTENTS......Page 735
28.1 INTRODUCTION......Page 736
28.2 THE BEST PLACE TO START......Page 738
28.3 BANKRUPTCY: AN OVERVIEW FROM BEGINNING TO END......Page 740
28.4 INCOME TAX CONSIDERATIONS......Page 774
28.5 MINIMIZING TAX AND RELATED PAYMENTS......Page 778
28.6 TREATMENT OF INCOME DURING THE BANKRUPTCY PERIOD......Page 779
NOTES......Page 784
BIBLIOGRAPHY......Page 785
29.1 WHAT IS ALTER EGO?......Page 787
29.2 TYPICAL SCENARIOS INVOLVING ALTER EGO......Page 791
29.3 INDICIA OF ALTER EGO......Page 792
29.4 LIMITED LIABILITY COMPANIES (LLCS)......Page 798
29.5 ROLE OF THE BUSINESS EXPERT IN ALTER EGO ANALYSIS......Page 799
NOTES......Page 801
LIST OF CASES......Page 802
CONTENTS......Page 803
30.2 THE ECONOMICS OF DISCRIMINATION.......Page 804
30.3 LEGAL BACKGROUND......Page 805
30.4 CATEGORIES OF DISCRIMINATION: ADVERSE TREATMENT AND DISPARATE IMPACT......Page 807
30.5 STATISTICAL BACKGROUND......Page 808
30.6 FORMS OF DATA USED IN EMPLOYMENT LITIGATION......Page 815
30.7 RECRUITMENT AND HIRING......Page 816
30.8 PROMOTION PRACTICES......Page 820
30.9 TERMINATION......Page 826
30.10 COMPENSATION AND PAY......Page 828
30.11 WAGE AND HOURS LITIGATION......Page 830
NOTES......Page 832
LIST OF CASES......Page 834
BIBLIOGRAPHY......Page 835
CONTENTS......Page 837
31.2 FEDERAL CONTRACTS AND NATURE OF DISPUTES......Page 838
31.3 LAWS, REGULATIONS, AND GUIDANCE......Page 840
31.4 THE FINANCIAL EXPERT......Page 844
31.6 CONTRACTOR CLAIMS......Page 846
31.7 CONTRACT PRICING AND CHANGES......Page 848
31.8 FALSE CLAIMS ACT......Page 855
31.9 QUI TAM ACTIONS......Page 856
31.10 FINANCIAL ACCOUNTING DISPUTES......Page 857
31.11 THE DISPUTE AND LITIGATION PROCESS......Page 858
CHAPTER 31 APPENDIX A: SELECTED FINANCIAL ACRONYMS......Page 861
PART IV – REPRESENTATIONS AND INSTRUCTIONS......Page 863
CHAPTER 31 APPENDIX C : CONTRACT AUDIT REPORTS ISSUED......Page 864
NOTES......Page 865
PART V: FAMILY LAW......Page 869
32.1 INTRODUCTION......Page 871
32.2 IMPORTANT DATES......Page 874
32.3 VALUATION METHODS......Page 875
32.4 MARITAL PROPERTY......Page 876
32.6 SPECIFIC PROPERTY......Page 878
32.7 CONCLUSION......Page 880
CHAPTER 32 APPENDIX: FAMILY LAW RESOURCE MATERIALS......Page 881
LIST OF CASES......Page 882
33.1 INTRODUCTION......Page 883
33.2 CHILD SUPPORT......Page 884
33.3 SPOUSAL SUPPORT......Page 887
33.4 RELEVANT FACTORS......Page 888
33.5 TYPICAL AWARDS......Page 890
33.6 ROLE OF CONSULTANT......Page 891
33.7 REPORT......Page 893
CHAPTER 33 APPENDIX: SAMPLE REPORT......Page 895
LIST OF CASES......Page 897
34.1 INTRODUCTION......Page 899
34.2 PROFESSIONAL GOODWILL: DEFINITIONS......Page 900
34.3 PROFESSIONAL GOODWILL IN COURT......Page 901
34.4 VALUATION METHODOLOGY......Page 902
34.5 BEYOND GOODWILL......Page 906
34.7 CONCLUSION......Page 910
CHAPTER 34 APPENDIX: SOURCES OF INFORMATION REGARDING PROFESSIONAL PRACTICES AND GOODWILL......Page 911
GENERAL MATERIAL......Page 912
LIST OF CASES......Page 913
35.1 INTRODUCTION......Page 917
35.2 COMMINGLING, TITLE, TRACING, AND APPORTIONMENT: AN OVERVIEW......Page 919
35.3 COMMINGLING: PRESUMPTIONS......Page 920
35.4 TRACING......Page 921
35.6 APPORTIONMENT......Page 924
35.7 REIMBURSEMENT......Page 927
LIST OF CASES......Page 928
CONTENTS......Page 929
36.2 ALIMONY......Page 930
36.3 CHILD SUPPORT......Page 935
36.4 DEPENDENTS......Page 936
36.5 FILING STATUS......Page 938
36.6 INNOCENT SPOUSE......Page 940
36.7 PROPERTY SETTLEMENTS......Page 943
36.8 MARITAL RESIDENCE......Page 945
36.9 RETIREMENT ACCOUNTS......Page 947
36.11 TAX ATTRIBUTES......Page 950
36.12 GIFT AND ESTATE TAX ASPECTS......Page 952
NOTES......Page 953
BIBLIOGRAPHY......Page 955
PART VI: CRIMINAL CASES......Page 957
37.1 INTRODUCTION: CIVIL TAX CASE VERSUS CRIMINAL TAX FRAUD CASE......Page 959
37.2 FOUR MOST COMMON TAX CRIMES......Page 960
37.4 PROOF BEYOND A REASONABLE DOUBT IN A TAX PROSECUTION......Page 963
37.6 METHODS OF PROVING THE TAX DEFICIENCY......Page 964
37.7 PROVING INTENT: BADGES OF FRAUD......Page 969
37.8 GOVERNMENT’S SOURCES FOR CRIMINAL AND CIVIL TAX FRAUD CASES......Page 970
37.9 INVESTIGATION BY CI: ADMINISTRATIVE VERSUS GRAND JURY INVESTIGATIONS......Page 972
37.11 ROLE OF THE ACCOUNTANT IN THE DEFENSE OF A CRIMINAL OR CIVIL TAX FRAUD CASE......Page 973
NOTES......Page 978
PART VII: INVESTIGATIONS......Page 981
38.1 INTRODUCTION......Page 983
38.2 KEY THEMES OF FINANCIAL STATEMENT FRAUD......Page 986
38.3 RESERVE SCHEMES......Page 990
38.4 ASSET MISAPPROPRIATION AND MISSTATEMENT SCHEMES......Page 991
38.5 SECURITIES LITIGATION......Page 996
38.6 PERFORMING A FINANCIAL STATEMENT INVESTIGATION......Page 998
FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) STATEMENTS......Page 1005
FASB CONCEPTS STATEMENTS......Page 1006
NOTES......Page 1007
39.1 INTRODUCTION......Page 1009
39.2 TYPICAL CASES......Page 1010
39.4 PLANNING, PLANNING, PLANNING......Page 1011
39.5 OTHER DATA COLLECTION PROBLEMS......Page 1014
39.6 DIFFERENCES IN REGULATIONS, PROFESSIONAL PRACTICES, AND CULTURES......Page 1015
39.7 OTHER SUGGESTIONS......Page 1016
NOTES......Page 1017
GLOSSARY OF FINANCIAL CONCEPTS*......Page 1019
INDEX......Page 1187