1. IRWA Chapter 67 2019 SUMMER REFRESH SEMINAR
Damages (With a Focus on Goodwill): An Appraiser and Attorney Discussion
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Will Thomsen
GROBSTEIN TEEPLE, LLP
Rick Friess
ALLEN MATKINS

2. INTRODUCTIONS
Appraiser: Will Thomsen, Grobstein Teeple, LLP Attorney: Rick Friess, Allen Matkins
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3. What We Are Going to Cover
Types of Damages.
a. Tort Damages.
b. Contract Damages. 
c. Takings Damages [E.g., Condemnation/Inverse Condemnation].
General Concepts Related to Damages.
Goodwill Damages Specifically (Our Focus)
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4. Types of Damages Tort Damages Contract Damages Takings Damages
constitutional and statutory damages;
condemnation;
inverse condemnation
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5. General Concepts Related to Damages
What are Damages?
Categories of Damages
Compensatory Damages
Punitive Damages
Statutory Damages
A few basics:
Reasonable Certainty Required/No Speculative Damages
General/Special Damages
Future Damages
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6. Goodwill Defined Statutory Definition Accounting/Economic Definition
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7. Calculating Goodwill Damages
Goodwill Damages Equals “Before Condition” Goodwill Minus “After Condition” Goodwill (Mitigated)
Require Goodwill in “Before” Condition for Compensation (Something to Lose)
Muller case – compensable damages not limited to lost patronage
Goodwill Loss Not Replicated by Other Awards (Avoid Double-Dipping) [Trickier than it sounds]

8. Methods to Calculate Goodwill
Residual (Business Enterprise Value – Working Capital –Tangible Assets – Other Identified Intangibles)
Capitalization of Excess Earnings
Cost to Create – (Aklilu Case: When is it a Valid Method?)

9. Business Valuation Approaches
Income
Market
Cost/Adjusted Balance Sheet
Income and Market: most common, as they reflect going concern/intangible value

10. Goodwill Damages Issues
Earnings Adjustments in Determining “Before Condition” Goodwill
Nonrecurring/Extraordinary Items
Management/Owner Compensation
Discretionary/Personal Expenses
Under-Reported Revenues
Real Estate-Related Issues (Fair Market Rent, Highest and Best Use)
Project-Related Issues (Adjust for Lower Sales, Higher Costs Due to Construction Impact, Management Disruption, Client or Supplier Issues, Employee Problems, etc.)
Multiple Location Analysis – Reasonable Allocation of Revenues and Costs to Subject Location

11. Mitigation Considerations
Duty to Mitigate – Reasonable Steps Taken?
Relocation Considerations (Cost, Location, Site Requirements, Zoning)
Relocation or Reconfiguration Capital Expenditures – Necessary vs. Discretionary/Betterment

12. Goodwill Value Calculation – “After Condition” Considerations
Full or Partial Take?
Project Impacts on Operations (Parking, Access, Circulation, Visibility)
Revenue Decline/Cost Increase – Permanent vs. Temporary, and How to Address
Benefits of New Location or Reconfiguration – Consider?
Discount or Capitalization Rate – higher rate for after condition means double-dip in damages?

13. Goodwill Damages Examples
Fruit Stand
Multiple locations
Internal reports for location not readily reconciled with overall tax returns
How to allocate revenue in a way consistent with overall reported results
Length of occupancy – area slated for development, so limited life to current use of land and goodwill income stream
Relocation possible – but lose high traffic location

14. Goodwill Damages Examples
Restaurant
Minimal profits per tax returns
Internal ledgers show high profits
Goodwill computed two ways. Significant goodwill using internal documents; none using tax returns
What evidence is admissible?
Case settled somewhere between zero and business owner’s estimate