A case from federal court in Wisconsin, involving starkly different approaches to valuing damages in a contract dispute, stresses the importance of independent verification and objective data.
Lyman v. St. Jude Medical S.C., Inc.; 2008 U.S. Dist. LEXIS 42015
Plaintiff Lyman entered into a 10-year deal with St. Jude Medical to sell pacemakers and defibrillators (CRM products). The agreement contained a four-year guarantee period for which Lyman was to receive $3 million. After that, compensation was commission-only. St. Jude terminated the agreement after two years. Lyman sued.
Daniel Gotter with Winter, Kloman, Moter & Repp, the plaintiff’s expert, used raw data to prepare five different models of damages projections based on sales quotas; projections calculated by the CFO for St. Jude’s parent company; regression analysis of the plaintiff’s company’s past sales at St. Jude; projected future sales; and projected net sales of the plaintiff’s company. The court allowed testimony on all five calculations, saying they would assist the jury in assessing damages.
The defendant’s expert, Randall D. Wilson with RGL Forensic Accountants Consultants prepared two sets of projections: one weighted and one unweighted. Both sets were derived from the plaintiff’s “alleged sales” during the approximately two years it sold CRM products to St. Jude, the numbers were obtained from one document provided to the expert by St. Jude’s counsel. Taking into account the plaintiff’s decreased sales performance between 2003 and 2004, St. Jude’s expert’s original regression resulted in a “negative sloping trendline.” Because the plaintiff’s sales varied widely from month-to-month, the expert weighted the data to obtain a positive trendline for years five through 10 of the agreement. The court focused not only on the source of the defendant’s expert’s data, but what he failed to do with it.
Contrasted with Gotter’s independent valuation of raw data, the court said “the bottom line is that [the defense expert] never talked to anyone at St. Jude to verify the accuracy of the information in any of the documents he reviewed.” Finding the basis for his projections unreliable, the court excluded Wilson’s projection testimony.
The case settled on the eve of trial. Plaintiff attorneys: Todd R. Seelman and Leslie E. Miller of Grimshaw Harring PC, Denver, CO; Michael J. Cohen and Thomas M. Hruz, Meissner Tierney Fisher Nichols SC, Milwaukee, WI. Defense counsel: Brian G. Cahill, David J. Turek and Paul F. Heaton, Gass Weber Mullins LLC, Milwaukee, WI.
Both the Lyman case abstract and full text of the court’s opinion are found in the Business Valuation Litigation Database (BVLD), available on Lexis.com at 2008 U.S. Dist. LEXIS 42015. For more information about business valuation and related litigation, go to www.bvrlegal.com.