Page 81 - Acertaining Economic Damages Calculation

tiff’s stock, plaintiff’s expert was able to offer an alternative approach to measure damages that the court
found to be reliable and not overly speculative.

Bessemer Trust Co., N.A. v. Branin, 544 F. Supp. 2d 385 (S.D.N.Y. 2008)

In this case, defendant Francis S. Branin, Jr. was a partner in an investment management business that
was sold to plaintiff Bessemer Trust Company, including all client accounts and goodwill. Subsequent to
the sale, Branin induced his largest account to leave Bessemer, for which he was sued.

The parties offered two opposing theories of damages. The plaintiff argued for a lost profits theory,
which the plaintiff’s expert described as a calculation of the lost profits that would have been earned and
bringing them back to a net present value over a supportable period of loss, and then adding those num-
bers to reach a conclusion. The defendant, however, argued for a return of capital approach, which is es-
sentially a market value theory.

The court rejected the plaintiff's lost profits theory because it involved "a multitude of assumptions" that
require "speculation and conjecture," including (a) the rate of return on the assets under management,
(b) whether the client would have added assets to the portfolio over time, (c) variable costs of managing
the account, (d) the discount rate, and (e) the projected length of the relationship between Bessemer and
the client. This last factor was of particular concern to the court given the lack of tangible support for
such an assumption.

Instead, the court followed the guidance from the Second Circuit (in cases such as Schonfeld v. Hillard,
and others) stating that market value was the most sensible method of valuing damages and a return of
capital approach was deemed most appropriate. The court noted that when there is wrongful diversion of
goodwill, the appropriate measure of damages is "the loss sustained by reason of the breach, including
the loss of profits for plaintiff caused by defendant's acts." fn 24 However, in the Second Circuit, the "most
accurate and immediate measure of damages is the market value of the asset at the time of breach — not
the lost profits that the asset could have produced in the future,’ in part because this value ‘reflect[s] the
buyer's discount for the fact that the profits [are] uncertain." fn 25 The court also said that measuring dam-
ages in this fashion is eminently sensible and implicitly takes into account future lost profits. The value
of assets for which there is a market is the discounted value of the stream of future income that those as-
sets are expected to generate.

Although the assumptions identified by the court are not necessarily unusual in a lost profits analysis, in
this case, the court found the following:

The return of capital theory requires no speculation on the part of the court as to how long [the
client] would have remained with Bessemer or what the attrition rate would be absent Branin’s
conduct. Rather, the court looked to the arm’s length transaction, in which the parties already
considered every relevant business factor in fixing a price. fn 26

fn 24 Bessemer Trust, 544 F. Supp. 2d at 390.

fn 25 Id., quoting Schonfeld, 218 F.3d at 176 (citations omitted).

fn 26 Id.

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