A Simple Theory of Complex Valuation
Anthony J. Casey
University of Chicago Law School
Julia Ann Simon-Kerr
University of Connecticut School of Law
August 15, 2013
Michigan Law Review, Forthcoming
The American legal system has a problem with complex valuations. These valuations cannot be done without expertise, yet competing experts provide so little accurate information to courts that judges routinely pick an arbitrary value that falls somewhere between the extreme values suggested by the parties. This creates costly uncertainty and undermines the legitimacy of the court. While this problem has been recognized, the proposed solutions have become increasingly complex and convoluted. As a result, no solution has been effectively adopted and the problem persists. This article suggests that the valuation dilemma can be solved more simply by recognizing a basic legal imperative that has been ignored in this context. Our theory of valuation rests on the simple idea that valuations are nothing more than enterprises in routine fact finding. Valuation is not an ethereal question with no right answer. Rather, valuation is a process of inferring a fact about the value that a relevant community places on an asset.
As simple as that point may be, it has been ignored in practice and received almost no attention in the academy. By reorienting the analysis of valuation around this foundational point, this Article reveals the potential for a shift in valuation practice that will both restore the legitimacy of the process and reduce the costs of uncertainty and biased testimony. We demonstrate that a return to traditional evidentiary rules, including attention to burdens of proof, will discourage courts from resorting to ad-lib spreadsheet calculations in favor of valuations arrived at through vetted methodologies that are shown to be reasonably accurate and supported by the record. We further show that this will lead to an improvement in the quality of information provided by expert witnesses.
Number of Pages in PDF File: 63
Keywords: evidence, civil procedure, bankruptcy, tax, valuation, experts, tort, judicial behavior
Date posted: August 16, 2013 ; Last revised: March 17, 2014
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