Proof of Liability Without Reasonably Certain Economic Damages Fails

Quantifiable Damages Essential to a Plaintiff’s Case

Without reasonably certain economic damages, the issue of liability becomes inconsequential.  The New Jersey Law Journal reported yet another case involving protracted litigation where the alleged damages couldn’t be proven.  We have seen this scenario before, in both professional malpractice defense matters and economic damages defense (rebuttal) contexts.

A departing hedge fund manager sued his former employer for alleged derogatory comments but the plaintiff was not able to demonstrate that a single potential investor failed to invest because of the comments.  While the departed employee in the reported case had employment-related compensation claims, we have been involved with litigation where the plaintiff spent almost $1 million in litigation costs, including considerable expert fees, where the asserted damages also failed as a matter of law.  For example, in New Jersey defamation cases, special (i.e., specific) damages must be proven — a yardstick or macro-type approach alleging total projected assets under management and lost profits without specific damages attributable to specific potential investors or specific unconsummated transactions as a result of the false comments, fails as a matter of law.

Indeed, when we pointed this out in our hedge-fund case, the plaintiff’s damages expert was withdrawn, and the court awarded none of the $65 million damages the plaintiff claimed.  Both the plaintiff’s expert and his counsel were exposed to malpractice claims as a result of their failure to consider New Jersey law with respect to the damages sought.  We have also seen this with major law firms who, on both the defense and plaintiff sides in wrongful termination cases, fail to research the applicable law governing the damages sought.

Forensic accountants are often engaged to perform valuation, fraud and forensic investigations for assessing lost profits and the extent of diversion of assets, damages assessment for personal injury insurance claims, or other economic damages. We often assess causation factors that may give rise to reasonably certain damages.  Forensic accountants, as part of damages claims, also provide expert testimony and analysis regarding failed mergers and acquisitions, accounting and legal malpractice, and white-collar criminal defense, which often involve allegations of tax fraud and related investigations by the IRS Criminal Investigation Division in conjunction with the U.S. Attorney’s Office.  Although white-collar crime and tax-fraud defense often do not involve testimony by the forensic accountant since we are often engaged in a Kovel capacity as a consultant to the defense attorney, most other litigation involving forensic accountants gives rise to an expert report and related testimony.

Cipolla & Co. regularly assists with the defense of accounting and legal malpractice claims, as well as affirmative and rebuttal damages assessments in complex commercial litigation matters, which are tried in the courts or by arbitration, often involving non-binding mediation which sometimes leads to a negotiated settlement.  With respect to business-divorce and shareholder derivative claims, we often assess valuation using myriad standards, including fair value, fair market value, strategic or investment value, enterprise value, intrinsic value, book value with equitable adjustments, liquidation value. We also consider discounts for lack of control, marketability, and key-man/key-person, tax affecting of pass-through entities and other tax and non-tax factors, such as, reasonable compensation for owner-operators of businesses. We also have extensive experience with hedge fund and FINRA litigation, and estates and trusts litigation.

Cipolla & Co. has been involved with tax and white-collar criminal defense, forensic accounting, valuation and damages assessment for over three decades and, according to the New Jersey Law Journal readership survey, was recognized as the best matrimonial financial expert, the best economic damages accounting firm, and one of the top forensic accounting firms in the New York  metropolitan area.  At Cipolla & Co., “we peel the onion” to provide thoughtful, comprehensive and thoroughly researched opinions and conclusions.

More information contact: Joseph P. Cipolla, Jr. CPA/ABV/CFF/PFS, CFE jcipolla@cipollacpa.com

www.cipollacpa.com