Early Damages Assessment in Data-Intensive Commercial Disputes

In the initial phases of litigation, the focus is placed on legal strategy: the analysis of the facts, the development of legal theories, and the research of case law. More practically, the legal team must also weigh the potential damages to be defended/recovered against the legal fees and related costs that will be expended. However, too often this assessment is simply a “back of the envelope” calculation. While this approach may be the result of fact assumptions and a wide range of alternative damage theories, it is often driven by the perceived hurdles of accurately quantifying damages.

Assessing the value of potential damages in cases involving a large number of transactions, a significant period of time, a complex organizational structure, multiple parties, and/or many unknown variables can be a daunting task. However, this seemingly cumbersome and time-consuming process can be tackled quickly with keen insight and the proper data management tools.

Recently, Gleason & Associates assisted a company in analyzing employment records for thousands of employees over a multi-year period in its defense of an employee class action lawsuit. Data points considered in the early damages assessment included hourly rates—which varied throughout the damage period due to rate increases and/or position changes—and various work-time data points, including shift time, meal time, and rest break time. The time-related factors required careful analysis to properly determine the shift lengths—both as individual shift periods and the total time worked per day—so that the employees’ work history could be compared to the applicable employment labor laws. With the use of relational databases and thoughtful planning, Gleason & Associates was able to provide the much-needed information to our client in a flexible format that considered varying circumstances based on alternative legal assumptions. Our approach also addressed management’s concerns by quantifying the company’s potential damages exposure and facilitating well-informed settlement negotiations.

In another case, our client had performed its own financial damages assessment in a pre-litigation phase of an alleged employee discrimination case. In this situation, Gleason & Associates was tasked with evaluating the company’s damages model by coupling business and economic knowledge with financial analyses skills to assist the client in further refining its analysis. While the damage model included compensation history and trend analysis for various employee class groups, we applied regression analysis and other statistical tools to determine the statistical significance (or lack thereof) of the case allegations. We also provided the company with alternative views of compensation and performance relationships that enabled them to further refine their litigation cost-benefit analysis. This quantitative evaluation of risk by an independent third party was an important and cost-effective investment in the early stages of the case that allowed our client to thoughtfully evaluate the strength of the case and their exposure to damages.

With an ever-vigilant audience of investors, shareholders, audit committee members, competitors, and regulatory agencies evaluating their every move, management and counsel must be prepared to quickly assess and communicate a company’s litigation opportunities/risks and potential damages recoveries/ exposures. Management must not only be able to qualitatively articulate its current litigation strategies and theories but must also be armed with reliable quantitative data supporting the financial risks and rewards of litigation. With a firm grasp of both legal and financial issues, companies can more effectively manage the process and quickly react to the changing landscape of complex commercial litigation.