Business Valuation Services: Litigation Support
Members of the American Business Appraisers National Network offer a wide range of litigation support services. While some litigation support services involve the business valuation, many do not. As an expert we can assist counsel from the inception of cases in determining if there are sufficient damages to justify litigation. We often work throughout cases to assist in identifying documents to request in discovery and assisting in formulating questions for interrogatories and depositions.
In general, litigation support services can be divided into two categories: testifying expert services and consulting expert services.
As a testifying expert, our purpose is to provide objective evidence to assist the trier of fact, be it judge or jury, in reaching a decision in a trial.
As a consulting expert, we are in a position to advise and assist our clients on achieving the best outcome. This is distinctly different from the testifying expert who must maintain objectivity throughout the case.
Ligation cases involving valuation or damages can include:
- Antitrust ligation
- Breach of contract
- Discrimination cases
- Patent infringement
- Personal injury
- Professional malpractice
- Securities litigation
- Shareholder disputes
- Theft of trade secrets
- Trademark infringement
- Wrongful death
On the other hand, if your attorney wishes to retain us as a consultant, we will not be permitted to testify in court and our work, and possibly even our identity, does not have to be made available to (“discoverable by”) the opposing parties.
In the pre-litigation phase, an appraiser may be asked to determine if damages are sufficient to proceed with litigation. We may also be able to identify different types of damage, injured parties and other types of experts which will be necessary to prove damages. Where there are valuation issues, a preliminary appraisal is a quick and less expensive estimate of value which can aid the lawyer in assessing the valuation aspects of a case. Similar preliminary damage estimates can be done with damage cases. However, often there is not sufficient information at the beginning of a case to reach either an opinion of value or an opinion of damages.
Every situation is unique. Please contact us to discuss yours, and an ABA member with the right experience and expertise will get in touch with you to take the next step.
Because of the depth of our knowledge, ABA members can identify areas of inquiry related to the financial issues in a case. This can be done by outlining potential questions to be posed to parties to the litigation or to witnesses in interrogatories, depositions, or on cross-examination. We can often assist counsel in understanding the financial and economic concepts that are the basis for valuation opinions or damage opinions. Where the valuation expert does not have the opportunity to interview management, the interrogatory process and depositions can be used to gather the necessary information to incorporate into the expert’s opinion.
Appraisers who have obtained the accreditation Accredited in Appraisal Review (ABAR) from The Institute of Business Appraisers or Accredited Senior Appraiser (ASA) in Appraisal Review and Management from the American Society of Appraisers have a heightened focus on professional responsibility in their and others’ practices. They are considered “Experts’ Experts” and are able to articulate the elements of business valuation reports that credibly meet the required professional practice standards. Such appraisers are able to constructively criticize the oral and written testimony of other business valuation experts in order to help triers of fact and juries reach appropriate verdicts.
A business appraisal review comments on matters such as the appropriateness of the valuation assumptions made, methods used, conclusions reached, and compliance with professional analysis and communication standards as well as numerous other factors that speak to appraisal quality. A business appraisal review does not include an opinion of value.
ABA's professionals can provide rebuttal testimony regarding the opinions of opposing experts and others concerning the values of business interest. This service is available on an independent (non-advocacy) basis or on a consulting (advocacy) service basis.
If you are in need of a business appraisal review, please contact one of American Business Appraisers National Network’s appraisers who are accredited in business appraisal review to discuss your situation and how we can be of assistance.
ABA members can assist in mediation and settlement negotiations, advising counsel the reasonableness of settlement offers. We may also be able to assist in formulating settlement alternatives. Typically all work done for settlement purposes cannot be used as evidence in trial.
Discovery is the legal process of collecting evidence during the litigation process. This information is incorporated into the expert’s opinion. Not only can we assist in identifying the documents to request, we can evaluate whether the information produced is responsive the request and track the documents received.
It is not uncommon for disputes regarding the value of a business or an interest in a business to end up in court. The judicial path to resolution commonly requires considerable time, delays, and expense for attorneys and expert witnesses, followed by a decision on the value by a judge. This may not provide a satisfactory outcome.
An alternative resolution is to submit your value dispute to ABA. Many members of the American Business Appraisers have earned certified arbitration panelist designations from the American Arbitration Association. The arbitrator will hear the view of both sides, gather data on the business, and determine a value for the interest which is legally binding on the parties. Generally speaking, this can be completed within 90 days and cost significantly less than the standard litigation process. ABA's Alternative Value Dispute Resolution Service can be structured with one arbitrator or a panel (usually of three). In all situations, panelists are jointly retained by both sides and are completely independent and objective.
For a panel situation, ABA will submit a list of names and qualifications to both parties. Each will select and retain one appraiser. The two retained appraisers will then pick a third who will be jointly retained by both sides and will chair the panel. The panel will meet with each side to hear their views, share information, and determine a final value.
The end of a marriage is an emotionally charged situation in which there is often wide disagreement between the parties regarding the valuation of a business or professional practice. ABA professionals are frequently retained by both parties or appointed by the court to deliver an independent opinion of value. Their neutral role has the potential to save money, time and emotional distress for all concerned. If, however, the valuation is to be contested in court, ABA professionals are also extensively trained, experienced expert witnesses.
There is substantial variation in the way the courts interpret which business assets constitute marital property subject to division and how they are valued. The following questions are answered differently from one court to another:
- Is value to be determined by the value to the well-informed arm’s length buyer in the market (pure fair market value) or the value to the spouse who will retain the business or practice?
- Are goodwill and other intangible assets marital property subject to valuation and division with the other assets owned by the couple? What portions are transferable and nontransferable?
- If the business predates the marriage, does the value of the business at the time of the marriage remain the separate property of one spouse with the marital asset limited to the value change during the marriage?
- To what extent should valuation discounts be applied to the business interest owned by the marital community?
- To what extent, if any, should the family relationships of other shareholders to one of the spouses affect the value?
- If the business has performed poorly since the separation, was it as a result of the distractions of the marital dissolution or have business conditions changed, and how does this affect the value?
- What is the proper (required) date of the valuation? Is it the date of the separation, the filing, or the trial?
As you can see, divorce valuation creates a host of legal and valuation issues, which is why you need the services of leading experts like ABA members.
Such appraisals usually focus on two very complicated issues: the value of goodwill and valuation discounts. Goodwill is an invisible asset that usually does not appear on the financial statements. It consists of components such as the reputation of the business and its employees, its trade secrets, location, and many other factors. It may or may not, however, be a marital asset, and that is a legal determination.
In a similar vein, business interests of less than 50% often lack control over the course of a business, and there is virtually no market for them. As a result, the values of such interests are often reduced (discounted) to reflect these impairments. ABA professionals are industry leaders in the quantification and substantiation of these discounts, where legally applicable.
Conflicts may arise between shareholders regarding the direction of a business. Most state’s statutes grant minority (“dissenting”) shareholders, LLC members, and partners certain protections when those in control take action with which they disagree.
The minority shareholder(s), LLC member(s), or partners may then file legal action to have the business purchase their equity interest at fair value, the standard used in this type of litigation.
Fair value is defined as the value of the equity interest immediately before the effectuation of the action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the action unless exclusion would be inequitable.
This definition addresses only the effective date of the value, which leaves the definition of “value,” or the standard of value, to the courts. This difference varies significantly from state to state. When ABA appraisers are retained by an attorney in these matters, it is the attorney’s responsibility to establish the definition of value.
In breach of contract litigation, the plaintiff has been damaged (caused economic harm) by an alleged action of the defendant. These types of litigation require the proof that an act has been committed which violated a legal right, that the act caused a damage to occur and the amount of the damage. Damages can be measured in terms of actual costs and/or lost profits (lost revenue less avoided costs). Consult an ABA professional to determine an appropriate measure of damages in your case.
Some ABA professionals are Certified Public Accountants (CPAs) and Certified Fraud Examiners (CFEs), qualified to help reconstruct financial statements when the integrity of the available data is in question.