A problem of valuation
in a legal context
Law & Valuation
Alan Palmiter
Spring 2005
Ladies and gentlemen of the jury:
You have heard the evidence
and have found defendant
United Airlines negligent in the
death of William Nollenberger,
the husband and father of the
plaintiffs in this action.
You now face the task of
assessing compensation in the
case. As attorney for the
plaintiffs, let me review the
damages evidence for you.
William Nollenberger
(1950-2004)
William's life expectancy
25 years
William’s current earnings
$60,000
Anticipated annual earnings increases
Years would have continued earning
3%
15 years
Current “cost of money”
• Inflation
1.5%
• US Treasury bonds
4.0%
• Private annuity contracts
6.0%
• High-risk financing
18.0%
Based on this evidence, you are to determine the general
damages suffered by his family that resulted from the
death of William Nollenberger by reason of the negligence
of United Airlines.
As jury, you may take into account all relevant factors to
ensure just and fair compensation to the plaintiffs.
Verdict Instructions
If you find defendant United Airlines
was negligent in the crash of Flight
049, return a verdict for the plaintiffs.
If so, state the amount of general
damages to which the plaintiffs are
entitled.
William's life expectancy
25 years
William’s current earnings
$60,000
Anticipated annual earnings increases
Years would have continued earning
3%
15 years
Current “cost of money”
• Inflation
1.5%
• US Treasury bonds
4.0%
• Private annuity contracts
6.0%
• High-risk financing
18.0%
Actual “special interrogatories”
1. What was the life expectancy of William?
2. How long would William have continued to earn if he
had not died? How much?
3. How much would William N. have gotten after
retirement from his government pension?
4. What percentage of William's earnings would have been
paid for William's personal expenses? for taxes?
5. How much were the services of William N. worth to his
family? To compute PV of services, what will annual
inflation be during William's life expectancy?
6. In figuring the value today, how much do you discount
money in the future?
7. How much would the family pay in taxes on award?
Nollenberger v. United Air Lines
216 F. Supp 734 (SD Calif 1963)
vacated 335 F2d 279 (9th Cir 1964)
Additional factors decided by jury in the case:
• Taxes decrease earnings, family’s award
• Personal expenses decrease net earnings
• Personal services increase family’s net returns
• Retirement (pension) earnings
• Discount rates vary – earnings, pension, services
Trial court methodology
Earnings
(increasing)
Services
Taxes
Personal
expenses
Net
earnings
Discount
Present value
(net earnings)
+
Discount
(increasing)
Present value
(services)
+
Pension
Discount
(flat)
Present value
(pension)
=
Tax adjustment
Judgment
Total PV
Nollenberger v. United Air Lines
Is calculation of damages?
• Matter of law (for judge)
• Matter of fact (for jury)
Can legal system perform this task?
Nollenberger v. United Air Lines
216 F. Supp 734 (SD Calif 1963)
vacated 335 F2d 379 (9th Cir 1964)
Jury award: $573,255
•
•
Special interrogatories
General verdict
Trial judge: $858,510
•
•
Finds special interrogatories inconsistent with general verdict
Enters judgment using special interrogatories
Appeals court: $573,255
•
•
Concludes jury may have considered factors beyond special
interrogatories
Vacates judgment, remands for judgment based on general verdict
Contexts for legal valuation
•
•
•
•
•
Litigation: personal injury, prejudgment interest,
equitable distribution
Business: corporate appraisal, buyouts, bankruptcy,
board decision-making, patent infringement
Taxation: minority interests, estate tax, inter-firm
transfers
Administrative: value of life, frozen embryos,
expropriation, property takings
Criminal law: death penalty, stolen art
“Blind leading the blind”
Peter Bruegel (Flemish 1568)
Legitimacy of legal valuation
in litigation?
•
Decision-makers
– Judge: trained in interpreting texts, judging human
dynamics, focusing on process
– Jury: excellent in interpreting evidence, identifying
falsehoods, reflecting community values
– Lawyers: same training as judges
•
Experts
– Paid by parties: subject to examination by other party
– “Battle of experts: rules of evidence allow accepted
methodologies of profession