What would Daubert say about those damages? 11.29.2004

The situation:

(From a question posted to a popular Forensic Economist's list serve by a CPA in Colorado:

A son dies without a spouse or heirs. The parents are the only ones who can sue. Son was 50. Dad is 85 and mom is 75. The business is a rental real estate company in a partnership. Son did all the managing of the property. Dad now has to do the management-getting tenants, arranging for repair men, etc.

Question: What are the damages to the son's estate?

Answer:

A. The opportunity cost of having to perform the property management work themselves.

These could be calculated as follows.

One angle is to figure out what a managment company would charge to do similiar work-most of those companies charge 10% of gross revenue. Mom and dad are 55% partners before son's death. Son and his two sisters were each 15% partners. The economic damage to parents would be 55% x gross revenue x 10%

B. Son's potential earnings over the SON's remaining worklife

If the parents can sue on the behalf of the estate, they would be entitled to their son’s earnings, less personal consumption. The son’s earnings would be his salary and share of any profits adjusted for taxes in the state as well.

C. Son's potential earnings over the PARENT's remaining life expectancy

The proceeds of the estate should be equal to the projected earnings of the deceased less personal consumption expenditure, but not for the worklife expectancy of the deceased, but the life expectancy of the beneficiaries. The rationale is that they (the estate) would have only benefited for as long as they lived.

Using ERISA can help determine a company specific worklife expectancy

ERISA Form 5500 can be a useful way to determine the average retirement age for a company.

On Schedule B, Actuarial Information, line 6b presents the average retirement age. Depending on the company the retirement age can be substantially different from the overall average retirement age.

For instance, consider a case where the attorney is attempting to value the pension benefits of in a wrongful death case involving the death of a mael tanker captain. If the attorney (or the economist) were to use the average of retirement to value the lost pension benefits, the damages would begin at the age of approximately 62 and end at about the age of 81. However, the PENSION PLAN FOR OFFICERS OF U.S. FLAG OCEAN-GOING TANKERS for Mobil Oil clearly shows that the average retirement age at the company is 55.

In a case involving this company, a valuation of the lost pension benefits for a fully vested individual would be significantly UNDERSTATED since the damages should began at 55 and run for a longer period.

The ERISA data can also be used to create an industry specific retirement benchmark. A good source for FREE ERISA data is:

www.freeERISA.com.

Economic damages in a false claims act case involving HCFA and HMOS

A False Claims Act Case

In a recent case, our economists were asked to analyze economic damages in a False Claims Act case that involved the Health Care Finance Administration (HCFA) of the U.S. Department of Health and Human Services. In this case the plaintiffs alleged that the health care providers were in violation of the their contracts with the U.S. to provide health care services to Medicare participants.

According to the complaint, the defendants are supposed to operate health maintenance organization contracts that require them to enroll any person eligible for Medicare. The plaintiffs allege that the defendants violated this requirement and cherry picked the HMO participants to enroll.

The question: How do you begin to address these economic damages? What data do you need?

Analysis 1: Compare the differences in cost and revenue associated with participants actually enrolled under the HMO's HCFA contracts and the cost and revenue associated with Medicare participants that could have been potentially enrolled under the HMO's HCFA contracts.

This analysis will require a simulation to determine what the revenue would have been had the HMO enrolled from the overall distribution and not allegedly cherry picked the healthy participants.


Analysis 2: Compare the differences between the HCFA cost associated with the participants actually enrolled under the HMO's contract's and the HCFA cost associated with the participants that could have potentially been enrolled under the HMO's contracts with HCFA.

These analyses will include analyses of the potential number of non-enrolled, rural Medicare participants that could have been enrolled the HMO's contracts with HCFA.

Data that is needed:

Specifically, for each participant in the defendant HMO over the relevant time period and geographical regions:

* The capitation rate for each beneficiary/participant in the HMO;
* Cost of providing services to beneficiary/participant in the HMO;
* The factors and/or multipliers that were used to construct the adjusted average per capita cost;
* Number of persons enrolled in the HMO
* Aggregated (preferably disaggregated micro-level data) demographical information for the persons enrolled in the HMO to include the age, gender, Medicaid status, institutional status (nursing home or not), and current working status;
* Select aggregated (preferably disaggregated micro-level data) medical condition information including the number of participants with a prior or current heart condition, average length of stay in the HMO, and a description of services rendered;
* Description of HFCA related data that is maintained by the HMO.;

What would Daubert say about those damages? 11.08.2004

The situation:

The plaintiff in a employment discrimination case claims to have been wrongfully terminated by a large employer EnvCorp, and is suing both EnvCorp as well as their former immediate boss at EnvCorp.

The plaintiff now makes 50% more income in the new job that is in the same general industry but in a different geographical region of the USA. The plaintiff was located in Decatur, IL and now will work in SF, CA. The plaintiff alleges that the earnings in the new job is not comparable because the cost of living is higher in the new locale.

What would Daubert say about those damages?

Check out the relative cost of living in the two cities!

If the cost of living is significantly higher, this would be an economic loss to the plaintiff. Look at some of the following relative cost of living calculators for more details and data.

http://www.coli.org/
http://www.homefair.com/homefair/calc/salcalc.html
http://www.datamasters.com/index.html
http://www.homefair.com/homefair/readart.html?art=bc_research

The different factors to consider when valuing lost retirement benefits: Defined benefit plans vs. Defined Contribution Plans

A Comparsion of the different types of retirment plans (See table below)

Valuation Factor	Defined Benefit	Defined Contribution - 401k
Determined in advance	Benefit after retirement	Contributions while working
Payment in Retirement	Determined by employer	Dependent on investment returns
Vesting Period	Usually 5 years	Usually 0-2 years
Funding	Employer	Employre + Employee
Portability	Difficult to move to new employer	Easy
Control of assets	Employer	Employee
Investment risk	Employer	Employee
Risk of default	PBGC protects some funds to some degree	Assets belong to employee; employer default not an issue

Selecting an economic expert, a view from a big law firm

An article by Quinn Emanuel, a large CA law firm, presents an excellent discussion on using Economists as experts. Great primer.




21-sep00.pdf

Preparing the economic expert witness for a deposition

Three things you can do to better prepare and economic expert witness for a deposition

1. Tell the economic expert how their testimony fits into your case.
It is very help for your economic expert, even in a ‘simple economic loss’ calculation case, to understand how their testimony fits into the bigger picture of your case. For instance, are there any discovery fights that are relevant to the expert’s testimony? If there are, the more information the expert has about them the better they can prepare for the cross examination questions concerning the issues.

2. Tell your economic expert the rules of the game.
Even if your expert has given a number of depositions, it is worth the time it takes to go over the rules of the deposition. For example, you may want to remind the expert about what and what not to bring to the deposition. It is also useful to lay out your expectations from the deposition beforehand. For instance, is your damages case hanging on his or her testimony?

3. Empower your economic expert.
While it is the duty of any expert witness to give truthful and honest answers, there is no guarantee that the answers that your expert provides will be understandable to you, or most importantly the jury. It is critically important for you to revisit the fundamentals of providing good deposition testimony with your expert each and every time.

For example it is always useful to tell the economic expert, even the old salts, that it is ok to say ‘you do not know’ when you do not know the answer to a question. Also, if the opposing attorney is a bully in the deposition room, it could be useful to go over and play act out some likely scenarios. For instance, let’s go over a scenario where the opposing attorney is trying to get your answer a question ‘yes or no’ that can not be answered ‘yes or no’. Or let’s think about how to handle the situation where the opposing attorney is trying to get you to testify about a document you do not know much about.

The more case specific scenarios you can rehearse prior to the deposition the better.