Summer 2007


Focus on Capital Markets and Commercial Litigation

Editors for This Issue: Craig A. Jacobson and James J. O’Sullivan

Commercial Litigation Insights

Feature Article:

The Draft Expert Report—Caught in the Tug of War Between Full Disclosure and the Work Product Doctrine
James J. O’Sullivan, Esq., and Richard T. Cordano, Esq.
There is a split in authority in the federal courts regarding the discoverability of attorney work product provided by counsel to his or her expert and in particular, the discoverability of draft expert reports. Most jurisdictions have ruled that the 1993 amendment to the Federal Rules of Civil Procedure makes it clear that any materials provided by counsel to a testifying expert is discoverable, including information contained in draft reports. However, a minority of jurisdictions still feel that draft expert reports should be protected from discovery if they contain ”core” or “opinion” work product. Recognizing the need for a consistent standard among jurisdictions and the fact that the discovery of draft expert reports has added unnecessary cost and complexity to the litigation process, the American Bar Association is pushing for a change to the federal rules that will protect expert draft reports from discovery. This article discusses the two schools of thought on the subject and the recent developments in the area.

Bankruptcy Court Addresses Daubert Challenges to Disqualify Valuation Analyst Expert and Valuation Opinion Expert Reports
Curtis R. Kimball
In the post-Daubert era, even experienced valuation experts may fail to qualify as an expert witness if a trier of fact finds a sufficient level of problems with the valuation analysis and/or valuation report. This discussion summarizes a bankruptcy case where the judicial criticisms of the valuation analyst’s expert report appear quite justified. However, in other cases, the judicial criticisms often seem unjustified. Those judicial criticisms are sometimes directed to valuation reports that are prepared in accordance with generally accepted valuation standards and valuation practices. Valuation analysts who offer litigation support services should be aware of such cases, in order to better prepare for judicial challenges to their own valuation reports.

The New Discovery Rules Pertaining to Electronically Stored Information: The Early Bird Catches the Worm
Marla S.K. Bergman, Esq.
In these times of increased litigation and the increased storage of data, it is important for anyone who may be a party to commercial litigation to be aware of the current rules related to electronically stored information. This topic is important to both business owners and their professional advisers. The knowledge of these new rules will enable companies to better face the challenges of commercial litigation.

Intellectual Property Litigation Insights

The Concept of Irreparable Harm in Patent Infringement Litigation
David L. Nocilly, Esq. and Suzanne M. Messina, Esq.
It is important for both the owners of intellectual property (including patents) and their professional advisers to understand the factors related to injunctive relief. The concept of irreparable harm is an important component of seeking injunctive relief in intellectual property litigation matters.

Financial Advisory Services Insights

Current ESOP and ESOP Trustee Corporate Governance Issues
David Burdette
Recent corporate scandals and conflict of interest issues related to merger and acquisition transactions have focused investors’ attention on the topic of corporate governance “best practices.” A review of corporate governance “best practices” related to employee stock ownership plan (ESOP) acquisition transactions can shed light on the broader topic of general corporate governance practices and procedures.

Fairness Opinions for Private Equity Fund M&A Transactions
S. Scott Cobb
Transactional fairness opinions have drawn their share of controversy in recent years. As private equity transactions represent an increasingly big slice of the mergers and acquisitions pie, it is important for investors to understand the uses—and limitations—of fairness opinions related to private equity merger and acquisition transactions.

Due Diligence and Procedural Checklist for the Independent Financial Adviser Solvency Opinion
Robert F. Reilly and Jacquelyn DeRosa
Transactional fairness opinions have drawn their share of controversy in recent years. As private equity transactions represent an increasingly big slice of the mergers and acquisitions pie, it is important for investors to understand the uses—and limitations—of fairness opinions related to private equity merger and acquisition transactions.

Estimating the Cost of Capital: An Update from the Private Equity Perspective
Craig A. Jacobson
Empirical data on real world rates of return are an important input to any valuation analysis. Today’s capital market environment may be characterized by (1) an increased level of merger and acquisition activity and (2) an increased participation by private equity firms. An understanding of these transactional rates of return and of the dynamics of the mergers and acquisition market will allow the valuation analyst to better apply empirical cost of capital data.

The American Institute of Certified Public Accountants Issues a New Business Valuation Standard, SSVS No. 1
Robert F. Reilly
After years of deliberation involving numerous groups within its organization, the AICPA recently issued SSVS No. 1: “Valuation of a Business, Business Ownership Interest, Security, and Intangible Asset.” SSVS No. 1 applies to all AICPA members (regardless of their technical discipline) when they perform an engagement to estimate value when the member (1) applies valuation approaches and methods and (2) uses professional judgment. This AICPA standard is effective for valuation engagements accepted after January 1, 2008. This discussion will summarize (1) the engagement acceptance considerations, (2) the valuation analysis requirements, and (3) the valuation reporting requirements of the new AICPA standard. While this business valuation (BV) standard only applies to AICPA members, it may ultimately benefit all BV analysts and all BV clients. This is because both BV clients and parties that rely on BV reports (i.e., bankers, regulators, government agencies, courts, etc.) may come to expect all valuation practitioners to prepare analyses and reports to incorporate the professional “best practices” that are required by the AICPA standard.

Capital Markets Regulatory Insights

The Employee Stock Option Backdating Kerfuffle: A Valuation Perspective
Craig A. Jacobson and James J. O’Sullivan, Esq.
The valuation and accounting implications of the “options backdating scandal” often get lost in the hysteria surrounding this issue. This discussion attempts to shed light on the real-world implications of this topic.

Hedge Fund Regulation and More: The SEC Tries Again
Patrick D. Sweeney, Esq.
Hedge funds have exploded both as a popular investment vehicle and as a focus of attention in the world of finance. One entity paying very close attention to hedge funds is the Securities and Exchange Commission (SEC). Investors and professional advisers would benefit from understanding the current discussion surrounding the regulation of hedge funds.