Case In Point: The Danger Of Dissimilar Comparables

Daryl K. Washington et al., v. Kellwood Company

The Washington v. Kellwood case is a good example of a plaintiff failing to apply the appropriate amount of review when selecting a proxy or yardstick. When using this approach to damages, particular care should be taken when selecting a proxy for a nascent business without a baseline history of revenues. Damages experts have leeway when selecting comparable firms to use as comparables in a yardstick approach. However, in this case the Court found that, selecting an established business with revenues exceeding the plaintiff's revenues by a factor of 1,000 stretched the "reasonableness" requirements too far. Damages in litigation are not likely to get simpler anytime soon, and the Washington v. Kellwood case highlights the importance of carefully selecting a similar proxy firm(s) when using the yardstick approach to damages calculations.

Introduction

In the often complex world of damages calculations in litigation, attorneys and financial experts rarely, if ever, encounter the same set of circumstances twice. While this can contribute to the challenge and appeal of these professions, pitfalls in damages calculation approaches are ever-present. One such potential pitfall is the use of comparable companies as proxies or yardsticks for measurement of damages sought in litigation. While the use of comparable companies in lost profits calculations is well-recognized and established, one recent case demonstrates the risks of using comparables that are not reasonably similar to the firm that is the subject of the lost profits calculation.

The risk of selecting a company that is too "speculative" for use as a proxy in a lost profits calculation was clearly highlighted in the matter Daryl K. Washington et al., v. Kellwood Company.1. In this matter, the plaintiff expert's use of the clothing company Under Armour as a proxy for the plaintiff's damages calculation was deemed "too speculative," and, according to the Court's decision, the plaintiff "did not prove that its new and untested business would have achieved vast market success but for Kellwood's (defendant) breaches."2.

Case Background

The plaintiff, Daryl Washington, owner of the "Sunday Players" brand name, sued Kellwood Company for an alleged breach of a licensing agreement to manufacture and market a line of sport compression clothing under the Sunday Players name. A large clothing manufacturer that focused on "private label" arrangements...

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