1. A problem of valuation in a legal context Law & Valuation Alan Palmiter Spring 2005

2. 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)

3. William's life expectancy25 years William’s current earnings$60,000 Anticipated annual earnings increases3% Years would have continued earning15 years Current “cost of money” Inflation1.5% US Treasury bonds4.0% Private annuity contracts6.0% High-risk financing18.0%

4. 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.

5. 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.

6. William's life expectancy25 years William’s current earnings$60,000 Anticipated annual earnings increases3% Years would have continued earning15 years Current “cost of money” Inflation1.5% US Treasury bonds4.0% Private annuity contracts6.0% High-risk financing18.0%

7. 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?

8. Nollenberger v. United Air Lines 216 F. Supp 734 (SD Calif 1963) vacated 335 F2d 279 (9 th 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

9. Trial court methodology Earnings (increasing) Net earnings Taxes Present value (net earnings) Personal expenses Discount Services (increasing) Pension (flat) Present value (services) Present value (pension) Discount + + = Total PVJudgment Tax adjustment

10. 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?this task

11. Nollenberger v. United Air Lines 216 F. Supp 734 (SD Calif 1963) vacated 335 F2d 379 (9 th Cir 1964) 216 F. Supp 734 335 F2d 379 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

12. 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

13. “Blind leading the blind” Peter Bruegel (Flemish 1568)

14. 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