The Superior Court of Massachusetts ruled in favor of the majority shareholder, finding the opposing damages expert’s assumptions “not to be true.”
Retained by Sullivan & Worcester
Minority shareholders of DBC Pri-Med LLC (Pri-Med) sued over a private company transaction in which the majority shareholder, Diversified Business Communications (Diversified), exercised an option to purchase the minority shareholder’s shares. The plaintiffs alleged that Diversified took actions that temporarily reduced the value of the company in order to exercise the option at an artificially low price. Defense counsel retained David Marcus of Cornerstone Research to respond to plaintiffs’ damages claim.
Dr. Marcus showed that the plaintiffs’ expert’s purported damages calculation relied on assumptions that were unsupported or contradicted by evidence.
The plaintiffs retained an expert to value Pri-Med “but-for” Diversified’s alleged conduct. Under this but-for scenario, the plaintiffs’ valuation was 70 percent higher than the enterprise value determined by a third-party appraisal.
In his expert report and trial testimony, Dr. Marcus identified several flaws in the plaintiffs’ expert’s analysis.
- Dr. Marcus showed that the expert had relied on assumptions that were unsupported or contradicted by evidence in the record, and demonstrated that the opposing expert failed to account for several value-relevant factors.
- In particular, Dr. Marcus showed that if the expert’s model was correct, it would mean that the same alleged conduct would have increased the value of the primary subsidiary of the company, while reducing the value of certain subsidiaries that were attempting to develop a new technology. In other words, the plaintiffs’ expert had ignored an offsetting effect caused by his assumptions in his purported damages calculation.
- Dr. Marcus also explained that new technologies are inherently risky and the fact that the technology did not ultimately succeed did not prove that any misconduct took place.
The Superior Court of Massachusetts ruled in favor of our client. In her opinion, the judge stated that “[a]lthough plaintiffs’ damages expert…came up with a far higher value for Pri-Med, this was based on several assumptions of alleged wrongdoing that this Court has found not to be true.”