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Legal Update

July 2022 This article focuses on Partner Reinsurance Co. v. RPM Mortgage, Inc., 2022 U.S. Dist. LEXIS 94244 (S.D.N.Y. May 25, 2022). This is a case of buyer’s remorse. The target’s financial condition changed dramatically after the LOI and buyer attempted to renegotiate the acquisition terms. This case illustrates how damages were calculated. Buyer’s remorse: everybody’s experienced it at one point or anot ...

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Valuing Business Interruption Claims in a Post-Pandemic World

Two Major Approaches Adopted by Courts Assessing Claims This article discusses the challenges that COVID-19 and other recent catastrophes present when calculating business interruption claims. It surveys the two common approaches adopted by courts, examines their outsized impact on an insured’s recovery, and discusses how the influx of new decisions will change the business interruption landscape. It also a ...

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Legal Update

May 2022 For more than 400 years, the limited liability protection of corporate entities has been perhaps one of the greatest accelerators of economic growth and capital formation in the industrialized world. Despite the benefits, corporations have also been used as vehicles to cheat creditors with bad guys hiding behind the “corporate veil.” Over time, courts have developed a strategy for creditors to “pie ...

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Analyst’s Noncompete Agreement Considerations in Corporate Acquisitions

(Part I of II) This is a two-part article that focuses on the situation where the target company is a private corporation, and the sellers are employee/shareholders. This discussion summarizes the taxation and valuation considerations related to a transaction where employee/shareholders are selling the private C corporation stock to a C corporation acquirer. Some of the taxation and valuation considerations ...

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Pre-Bankruptcy Bonuses

A Fair Payout or a Disaster Waiting to Happen In 2020 alone, approximately 7,300 companies filed for Chapter 11 bankruptcy. Of those corporate debtors, 42 were found to have awarded pre-bankruptcy retention bonuses to a total of 223 executives, with the bonuses totaling approximately $165 million. These pre-bankruptcy bonuses were given to executives anywhere from five months to two days before the filing. ...

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Hack Damages

From Beginning to End The authors of this article discuss what happens when credit card data is stolen and personal identifiable information is stolen. They recount how this information is used and sold on the dark web and the issues that arise when damages are claimed. The case of Target Corporation Data Security Breach Litigation, Attias et al. v. Carefirst, Inc., and Wawa provides context and insight on ...

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Analyst Considerations in the Valuation

of a Tax Loss Target Company Acquisition This article summarizes the factors that acquirers—and their valuation and other financial advisers—should consider when structuring an M&A transaction that involves a target corporation with such income tax attributes. Introduction Valuation analysts and other financial advisers (collectively, analysts) are often retained to advise acquisitive clients with regar ...

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Lost Profits

Moving Forward During COVID-19 The COVID-19 pandemic has brought difficulties and major lifestyle changes for most of us. This is particularly true for the business world. Some firms have been negatively impacted. Some businesses have benefitted from the change in our lifestyles. Because causation is an important consideration in commercial damages cases, experts assigned to estimate lost profits must consi ...

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The Internal Revenue Code’s §170

Charitable Contribution Deductions (Part II of II) The Tax Cuts and Jobs Act of 2017 and subsequent tax acts, such as the CARES Act, have complicated charitable giving and estate planning. This second part of this two-part article provides an overview of the limits placed on conservation easements. (Read Part I here.) In this second of a two-part article, the limits on the value and legality of conservation ...

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Is There an Ability to Recover for Business Losses

Related to Property Contaminated by COVID-19 Not only has the COVID-19 pandemic impacted the health of hundreds of thousands of people globally, but the government response to this health crisis has also created a significant financial burden on businesses across the country. State and local officials issued “stay at home” orders which required the majority of residents to stay at home in states and countie ...

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COVID-19—Proximate Cause

and its Impact on Lost Profits Calculations These are challenging times. Financial experts are faced with economic uncertainty and differing projections from various sources as to what the “new normal” will look like. Regardless of the economic circumstances, financial experts are hired to estimate lost profits. These calculations must be made with reasonable certainty. But to be reasonably certain, proxima ...

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Lost Profits and Discount Rates

What Do the Courts Want? Finding the methodology for determining the appropriate discount rate in a lost profits case can be a convoluted journey. The numerator (the lost profits) may be adjusted through modeling. The denominator (the discount rate) may be a risk-free rate, a rate of return on investments, or the rate of return commensurate with generating the lost profits had no wrongful act occurred. And, ...

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Issues in Estimating

The Cost of Equity Capital (Part II of II) This is the second of a two-part series article focused on issues that arise estimating the cost of equity capital. In most forensic-related valuation analyses, one procedure that affects most valuations is the measurement of the present value discount rate. This discount rate analysis may affect the forensic-related valuation of private companies, business ownersh ...

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Equity Size Premium

Observations and Delaware Fair Value (Part II of II) This is the second of a two-part article, read Part I here, that focuses on empirical evidence supporting the size premium adjustment, observations regarding the CRSP size premium 10th decile category, liquidity issues that may account for the size premium, and certain Delaware Chancery Court decisions involving a size premium discussion. In this second p ...

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Litigious Attitude Couple With Major Blunders Leads to Big Loss

Lessons on Ill-Conceived Strategies that Companies Should Avoid Doing in Business and in Litigation Being aggressive in business and in litigation is considered an advantage. But, as illustrated in a recent 7th Circuit case, it is possible to be overly aggressive. When this is coupled with some serious mistakes in business and in litigation, it can be disastrous. The cases, 4SEMO.COM Incorporated v. Souther ...

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The Treatment of Synergistic Value

In Dissenting Shareholder Appraisal Rights Matters (Part II of II) The Delaware Court of Chancery decisions on the treatment of synergistic value in dissenting shareholder appraisal rights cases provide meaningful guidance to valuation analysts, legal counsel, and other courts. This final part of the article continues the discussion on recent judicial decisions issued by the Delaware Court of Chancery where ...

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The Treatment of Synergistic Value

In Dissenting Shareholder Appraisal Rights Matters (Part I of II) The Delaware Court of Chancery decisions on the treatment of synergistic value in dissenting shareholder appraisal rights cases provide meaningful guidance to valuation analysts, legal counsel, and other courts. In this two-part article, the author discusses recent judicial decisions issued by the Delaware Court of Chancery where synergistic ...

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Case Law Update

April 2019 In the first quarter of 2019, there were no reported U.S. Tax Court cases involving either business, estate, or FLP valuation issues. Notwithstanding the above, there were several cases that valuation and litigation support professionals will want to consider. In this article, five recent cases are discussed. One of the leading cases circulating amongst the business valuation community is Kress v ...

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Residency and Domicile Determinations

for State Income Tax Purposes How will the SALT limits impact growth? Demographic trends? In this article, the author looks at current data, considers these issues and other tax matters that complicate residency choices and options. A few years ago Fox News Channel’s commentator and nationally syndicated radio talk show host (both based in New York), Sean Hannity, threatened that he was going to leave New Y ...

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Overview of the But For Investment Portfolio

To Measure Trustee Breach of Fiduciary Duty Damages The but for investment portfolio is a tool that damages analysts utilize to estimate economic damages when there is an allegation of a breach of fiduciary duty with regard to the management of an investment. In its simplest form, the but for investment portfolio estimates the value of a portfolio but for the alleged breach of fiduciary duty. Case law prece ...

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